In summary, Tether (USDT) is a major stablecoin with significant market influence that faces regulatory pressures and transparency concerns, potentially increasing the risk of a collapse. A USDT collapse would have catastrophic consequences for the crypto market due to its extensive use in trading pairs and provision of liquidity. To protect your portfolio from these risks, consider diversifying your stablecoin holdings, using multiple exchanges, staying informed, maintaining access to fiat currency options, holding a portion of assets in cold storage, and hedging with other assets.
Is it possible that the potential collapse of Tether’s USDT token could lead to the most significant cryptocurrency market crash in history? As uneasiness and rumors swirl, it becomes crucial to consider the implications for your crypto investments.
Table of Contents
The significant role of Tether (USDT) as the leading stablecoin supplier within the cryptocurrency market is indispensable when it comes to ensuring liquidity and price stability.
Having a market value of approximately $112 billion, Tether’s USDT dwarfs its nearest rival, Circle’s USDC, with a market value of around $32 billion.
Tether, the stablecoin issuer, has been subjected to various troubling accusations throughout its existence. Skeptics have raised doubts about the reliability and collateralization of USDT, citing shortcomings such as potential reserve deficits and inadequate audits. These apprehensions have left many within the cryptocurrency community uneasy.
As a crypto investor, I’ve noticed that Tether made an important announcement on June 24th. They revealed their plans to discontinue the minting of USDT on both the Algorand (ALGO) and EOS (EOS) blockchains. This decision is part of a strategic shift in prioritizing support for community-driven blockchain projects instead.
For the next twelve months, Tether will still exchange the stablecoin for its equivalent value in US dollars on both Ethereum and Tron networks. However, no new units of USDT will be created on these chains.
On June 20th, experienced trader Peter Brandt voiced apprehensive forecasts about the future of Tether. As someone who has previously raised doubts about this digital currency, his warnings are worth taking note of.
Brandt shares the concerns of other skeptics, predicting potential troubles for Tether in the days ahead.
“I’ve long held this belief, and I concur with your analysis – the US Dollar’s demise may take longer, but eventually, it will face its downfall, while Tether is likely to experience a similar fate years earlier.”
— Peter Brandt (@PeterLBrandt) June 19, 2024
Let’s explore the accusations surrounding USDT and delve into the motivations behind its latest moves. Is a potential collapse of USDT on the horizon?
USDT’s chaotic journey in the crypto market
In 2014, Tether Limited, founded by Brock Pierce, Reeve Collins, and Craig Sellars, introduced a digital currency named Realcoin, which later got rebranded as Tether (USDT).
Tether, initially presented as a dollar-linked stablecoin, aims to maintain an equal value for each USDT token through supposedly backing them with equivalent USD reserves. Yet, its history has been marked by various hurdles.
As a researcher looking into the history of Tether, I’ve noticed that from the very beginning, the company’s operations have been shrouded in mystery, leading to valid concerns. Specifically, between the years 2017 and 2018, there was an unprecedented increase in Tether’s market supply. This surge went from a mere $10 million to a staggering $2.8 billion. The authenticity of their reserves and the transparency of their operations have been at the heart of numerous debates as a result.
In 2018, Tether’s value dipped to $0.88, sparking concerns over its security and backup reserves. Subsequently, its market control waned, falling from almost 94% at the year’s beginning to roughly 74% by its end.
As a crypto investor, I’ve noticed an intriguing development in the market: In 2019, Tether’s trading volume surpassed that of Bitcoin (BTC). This achievement underscores its significant role within the crypto ecosystem. However, it also brings intense regulatory scrutiny due to the issues surrounding its stablecoin nature.
In 2021, the New York Attorney General filed a lawsuit against Tether and its affiliated company, Bitfinex. The suit disclosed that Tether had extended a $850 million loan from its reserves to help Bitfinex recover from financial losses. This settlement, which didn’t involve an admission of guilt, failed to quell the criticism.
In the year 2023, according to a report by The Wall Street Journal, Tether Holdings were found to have employed fabricated invoices and contracts as part of an effort to bypass banking regulations, significantly undermining their trustworthiness.
Throughout its history, there have been accusations levied against the company involving questionable market practices and connections to criminal enterprises such as money laundering schemes and sanctions violations.
Despite Tether’s efforts to boost transparency by augmenting its US Treasury Bills holdings and disclosing reserve details through breakdowns and attestations, skeptics remain unconvinced. Their concerns persist due to the past composition of Tether’s reserves, which heavily relied on commercial paper.
In the first quarter of 2024, Tether announced impressive figures with a profit of $4.52 billion, an asset value of $86.4 billion, and liabilities amounting to $83.2 billion. The organization has stated that approximately 90% of their reserves consist of cash and its equivalent forms, primarily US Treasury Bills.
boasting a market value exceeding $112 billion at present, Tether holds the leading position in the realm of stablecoins. However, its preeminence carries the danger that a possible downturn could significantly ripple through the entire cryptocurrency sector.
Rising concerns for Tether
As a researcher studying the cryptocurrency market, I’ve observed that Tether, the most commonly used stablecoin, has been under increasing scrutiny, particularly within the European Union (EU). Regulatory shifts have raised doubts and concerns regarding its stability and compliance with EU regulations.
Starting from March 2024, I, as an analyst, would communicate that OKX made a decision to discontinue USDT trading pairs for users residing in the European Union and European Economic Area (EEA).
OKX announced that it will concentrate on Euro-based market liquidity, implying that USDT can still be used for deposits, withdrawals, and OTC trading. However, users are now unable to directly trade USDT against cryptocurrencies other than USDC and the Euro.
This choice is consistent with the European Union’s upcoming regulatory structure, referred to as MiCA (Markets in Crypto-Assets), which is expected to be fully implemented by the close of 2024.
Stablecoin issuers are mandated by MiCA to be recognized as electronic money institutions – a status that several stablecoins presently circulating in Europe fail to satisfy.
Starting July 1, European users of the cryptocurrency exchange Uphold received a notification on June 18 that six widely used stablecoins, among them USDT, would be removed from the platform.
As a researcher studying the cryptocurrency market, I can tell you that exchanges like ours have recently announced a change in policy due to the upcoming implementation of MiCA regulations. In response, users were requested to convert their holdings into other supported cryptocurrencies prior to a specified deadline. Failure to do so would result in an automatic conversion of their stablecoins into USDC by our platform after the deadline.
Significant cryptocurrency exchanges, including Binance and Kraken, are now reevaluating their stablecoin practices in response to newly implemented regulations.
Warning: Kraken, a significant money laundering entry and exit point for Tether, could be compelled to withdraw USDT from the EU
Note: Tether has declined to comply with EU regulations for stablecoins, arguing that it would be difficult for them to meet basic requirements such as distributing reserves among various banks.
— Rho Rider (@RhoRider) May 17, 2024
As a researcher examining Binance’s response to the European Union’s Markets in Crypto-Assets (MiCA) regulation, I can explain that Binance has divided its stablecoins into two groups: those that have received regulatory approval under MiCA, and those that have not. However, at this point, the exchange has not publicly announced which specific stablecoins will continue to be supported based on their regulatory status.
As a crypto investor, I’ve noticed that Tether’s exclusion from trading pairs within the EU has sparked concerns regarding its prospects and authenticity as a stablecoin in this region. The implications of this development are significant and merit further scrutiny.
Could USDT collapse?
As a researcher studying the events surrounding TerraUSD (UST), I’d like to share an insightful perspective on this historical occurrence. TerraUSD, an innovative algorithmic stablecoin, aimed to keep its value linked to the US dollar through intricate mechanisms and incentives tied to its companion cryptocurrency, Luna.
As an analyst, I would describe the events of May 2022 as follows: In May of that year, I observed a significant depegging of UST from the US dollar. This development proved to be a severe blow for UST, leading to a collapse in the system. The failure to stabilize UST triggered widespread panic among investors, resulting in a massive sell-off. Consequently, billions of dollars in value were wiped out from the crypto market.
Should USDT encounter a situation comparable to what another stablecoin experienced, the repercussions could be significantly greater given its broader market reach and ubiquitous use on numerous exchanges and platforms.
Currently, there’s a growing trend towards tighter regulation, exemplified by the European Union’s Markets in Crypto-Assets (MiCA) rules. These regulations may result in enhanced scrutiny and possible legal complications for Tether.
An ongoing issue is the lack of clarity regarding Tether’s reserves. Should it be disclosed that these reserves fall short or if they fail to adhere to fresh regulations, the potential for Tether’s collapse increases significantly.
Tether, which has previously navigated through difficulties, continues to raise valid worries about possible collapse among crypto enthusiasts, an eventuality that must be addressed with caution.
What would happen if USDT eventually collapses?
Should Tether (USDT) experience a significant downturn, the consequences for the cryptocurrency market could be disastrous. USDT serves as the foundation for numerous trading pairs and plays a vital role in supplying liquidity across various exchanges. As the most frequently traded stablecoin, its potential failure would trigger ripples felt throughout the entire crypto sector.
As a crypto investor, I can tell you that the withdrawal of USDT from major exchanges would significantly impact market liquidity at first. USDT is frequently used in trading pairs and contributes substantially to daily trading volumes. Consequently, this reduction could make it more challenging to execute trades or enter/exit positions promptly.
From my perspective as a researcher, as of the 26th of June, USDT has taken the lead in crypto asset trading volume with an impressive nearly $60 billion worth of transactions. In contrast, Bitcoin (BTC), previously the frontrunner, now trails behind with a trading volume of approximately $43 billion. Additionally, there is a substantial disparity between their market caps: BTC boasts around $1.12 trillion, whereas USDT only amounts to about $112 billion. This significant discrepancy underscores the potential far-reaching consequences should USDT encounter any instability.
As a crypto investor, I can tell you that Tether, the stablecoin issuer, printed approximately $80 billion worth of USDT tokens in the years 2020 and 2021. This significant production highlights Tether’s substantial impact on the market. If USDT were to suddenly vanish, the liquidity it provides would be lost, leading to a domino effect where prices could potentially plummet across various cryptocurrencies.
Additionally, investors might rush to sell off their crypto holdings, triggering a significant drop in crypto asset prices. Vitalik Buterin once described Tether as a “time bomb” for Bitcoin, implying that its instability could cause major market upheaval.
As a market analyst, I’d point out that relying excessively on USDT-based trading pairs on centralized exchanges could potentially lead to operational disruptions for traders. USDT is widely used as the primary stablecoin in these trading platforms, so any instability or volatility in USDT could impact transactions and market liquidity significantly.
In the event of a collapse, these trading platforms would be compelled to suspend transactions, limit withdrawals, and initiate emergency repairs. Smaller exchanges are at greater risk during a liquidity shortage and may not withstand the pressure, potentially leading to bankruptcy. Consequently, users could lose access to their funds.
As a researcher studying the cryptocurrency market, I can’t help but acknowledge the potential consequences of a USDT collapse. Such an event might undermine investor trust not only in Tether itself, but also in other stablecoins like USDC and DAI. This erosion of confidence could dissuade new investors from entering the market and even prompt existing ones to withdraw their funds, potentially leading to further market instability.
Shielding your portfolio from Tether risks
To minimize the risk of losing funds if USDT were to experience a collapse, consider taking preventative actions and spreading your investments across different assets or platforms. Some possible methods for securing your holdings include:
- Diversify your stablecoin holdings: Instead of relying solely on USDT, consider holding a mix of other stablecoins like USDC, DAI, or BUSD. These alternatives have different reserve backing and regulatory compliance, reducing the risk associated with a single stablecoin.
- Use multiple exchanges: Spread your assets across several reputable exchanges to mitigate the risk of any single platform facing liquidity issues or going bankrupt in case of a USDT collapse. Ensure that these exchanges have strong security measures and are compliant with regulations.
- Stay informed and updated: Keep abreast of the latest news and developments regarding Tether and other stablecoins. Regulatory changes, legal issues, or market movements can provide early warning signs of potential trouble.
- Consider fiat on ramps and off ramps: Maintain access to fiat currency options on exchanges. This allows you to quickly convert your crypto assets to fiat in case of market instability. Look for exchanges that offer seamless fiat transactions and have strong banking relationships.
- Hold a portion of assets in cold storage: For long-term holdings, consider keeping a portion of your crypto assets in cold storage wallets. This reduces exposure to exchange-related risks and ensures the safety of your funds.
- Hedge with other Assets: Diversify your overall investment portfolio by including traditional assets such as stocks, bonds, and commodities. This can help balance the risk and provide stability in case of crypto market disruptions.
Read More
Sorry. No data so far.
2024-06-26 16:37