Tether has been suspected to be responsible for Bitcoin price surge last year to near $20K. Until today, despite regulatory changes, agencies such as US Securities and Exchange Commission still have their doubts over the possibility of price manipulation in the crypto market.
On Monday, investors fled from the so-called stable coin Tether and Bitcoin experienced a 9% jump all of a sudden.
What Exactly is Tether?
One of the things that is supposed to be addressed by Tether is the volatility of the crypto market. Tether is pegged to US dollar. This means that it has a dollar for every token that it issues. The thing with Tether is that it has been used as a dollar substitute mainly because it is transferred from one exchange to the next easily.
What Tether does is convert cash into digital currency. Tether, also called the USDT was created in 2015. It was made by CEO Jan Ludovicus van der Velde and CFO Philip Potter. Right now, there are around $2 billion Tether coins in circulation.
On October 15, Tether was the second most traded digital currency after Bitcoin. In fact, the fact that it doesn’t have to travel to the banking system makes it an attractive option for many. According to their website, Tether allows investors to “store, send, and receive digital tokens person-to-person, globally, instantly and securely for a fraction of the cost of alternatives”.
There were claims that it has been used in propping the value of Bitcoin. It also happens that Bitfinex CEO is also the same leader that Tether has. Once Tether sends the freshly minted tokens to Bitfinex, it has been observed that Bitcoin price went up. It was, therefore, suggested that Tether tokens were used in purchasing Bitcoin.
What Makes Tether Better Than Bitcoin?
Bitcoin and Tether make use of blockchain technology. However, since it is backed by US dollar, it has the stability that isn’t offered by Bitcoin. But that’s where the problem starts. Many individuals fear that Tether doesn’t have the currency reserve to back the number of tokens in circulation.
Ludovicus van der Velde released a statement saying that “Despite speculation, we have consistently stated that tether is backed by USD reserves at or exceeding the tethers in circulation at a given moment, and we’re glad to have independent verification of this to answer some of the questions posed by the public”.
A Sudden Plunge
On Monday, the price of Tether from around 99 cents plunged to 92 cents before it was able to recover 97 cents. In addition to this, Bitcoin’s price went up going as high as $6,769 before it settled to $6,640. Regardless, Bitcoin was still up by 5.2% on that day.
Until today, there is fear on the part of investors that Tether is being used for manipulation. In fact, it was written by academics at the University of Texas.
One of the main reasons why Tether’s value has declined away from $1 mark is due to the rumors that Bitfinex is currently having financial problems. And for this reason, it is believed by experts that investors are selling their Tether and buying Bitcoin instead.