TL;DR
In the past 12 hours, crypto market prices have experienced a significant decline: BTC dropped by about $300 (or 5%), and ETH lost 11% of its value. The crash in price is not unusual in a bear market, however, what was strange was how Tether’s price reacted to the change in volatility.
Typically when the market crashes traders flock to the stable coin to reduce their losses or preserve their profits. The sudden spike in demand usually leads to Tether’s price rise slightly above $1. However this time, Tether experienced about a 2.1% decline to the US dollar, and rival stable coin TUSD experienced a 4% increase when paired with Tether:
This price discrepancy is very unusual for Tether, as the stable coin has held its position as the primary currency to buy when the market begins experiencing extreme volatility. It’s possible that the recent increase in stable coin alternatives and the increase in USD/BTC pairs on exchanges may be leading traders to become less attracted to Tether, especially as the controversy around its lack of transparency regarding how much USD it has in reserve continues to grow.
Other possible reasons for the signs of weakness in Tether may have to do with the breaking news story about Bitfinex. The exchange halted all fiat currency deposits, which sparked rumors that HSBC has closed their
account, and that they were perhaps becoming insolvent. This negative news would have a significant effect on the price of Tether because Bitfinex is now the second biggest holder of Tether (USDT) in its hot wallet, holding more than 259 million USDT. In the past 24 hours, it was reported that more than 100 million USDT was removed from Bitfinex and sent to unidentified addresses. This only help add more fuel to the rumors that Bitfinex could be facing bankruptcy.
Yesterday the price of BTC on Bitfinex was $100 higher than on GDAX and Bitstamp. This price discrepancy was likely due to the lack of fiat deposits on the exchange.
Still, there’s no question that Tether has a firm hold on the crypto markets. The majority of cryptocurrency exchanges take place in Tether, so if the stable coin were ever to fail, it would likely result in Bitcoin and Altcoin prices dropping back to early 2017 levels. With the lack of proper audits around the stable coin, many are unsure whether they are sitting on top of a ticking time bomb ready to explode and take the crypto market down with it.
Keeping this in mind, it only makes sense that the market is beginning to accept other stable coin alternatives that provide greater transparency and security.
During times of extreme volatility, we can predict that TUSD, Gemini coin, PWC’s upcoming stable coin, and even the US dollar will slowly start to eat away at the market share of Tether, leading to greater price discrepancies between TUSD and other stable coin pairs.
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