Tether: A Potential Ticking Time Bomb that could Disrupt the Crypto Market

Without resorting to spreading unnecessary FUD (fear, uncertainty, and doubt), tether remains a point of concern for the cryptocurrency market at large. The Tether USDT token has become an integral part of the cryptocurrency trading market that a tether collapse could be potentially problematic for the entire cryptocurrency market.

The ripple effect of such a collapse can lead to a number of disastrous consequences chief of which is the toppling of major cryptocurrency exchange platforms.

While there is always an element of fierce rivalry and competition within the market as developers vie for a greater control of the market, hardly anyone in the industry would want to see tether fail, and quite rightly so.

Tether: A Stable Coin, for Now

The Tether USDT token has so far been a stable cryptocurrency token. The USDT is designed to be pegged to the US dollar in a 1 to 1 ration. Since its emergence, tether has regularly maintained that mark despite a few occasions where it dropped to about $0.80 or increased to slightly above the $1 mark.

According to Coinmarketcap, Tether is one of the top 20 cryptocurrency tokens in terms of market capitalization. It currently occupies the 17th position on the log with a market capitalization of $2.22 billion. At the end of January 2017, tether had a market capitalization of $4 billion.

Then came the massive market-wide correction that saw the total market cap of the crypto market decline by 50 percent, thus making the market cap of Tether to be at its present value.

“Tethered” to the US Dollar

According to the tether white paper, there is $1 for every tether token held in trust. For this reason, tether has become a valuable source of liquidity for the cryptocurrency market. According to a recent report published by Weiss Ratings, tether poses a considerable risk to the cryptocurrency market.

The report states that tether is the only cryptocurrency that regularly has trading volumes that exceed its market capitalization. This points to the fact that Tether is indeed a major source of liquidity for the entire cryptocurrency market.

The report also commented on the fact that any problems with tether would lead to far-reaching consequences in the market.

A Series of Worrying News

In essence, tether, due to its current status in the cryptocurrency market, carries a counterparty risk. Like all financial instruments that carry a counterparty risk, Tether is simply too big to fail.

With this in mind, some of the news that has emerged concerning Tether in recent times will definitely not come as any comfort to cryptocurrency traders. There have been pervasive rumors all over the crypto-vine that Tether is issuing tokens that aren’t backed by US dollar deposits which play right into the catastrophic time bomb scenario.

There is also the matter of its unclear association with Bitfinex and the controversy surrounding its botched auditing agreement with Friedman LLP, an auditing firm. In January the United States Commodity Futures Trading Commission (CFTC) is issuing subpoenas to Tether as well as Bitfinex.

With these issues yet unresolved, cryptocurrency traders and investors will most definitely be keeping an eye out for any further developments.

Feature image by Tether

2 Responses

  1. It seems to me that Tether is indeed a ticking bomb that will probably explode in 2019 or 2020. I think irregularities will be found regarding it and that will be its doom.

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