How Will Tether’s Collapse Affect the Current Bitcoin Price?
According to cryptocurrency market watchers, US dollar backed cryptocurrency Tether, could be about to send Bitcoin to the digital currency dark ages.
Shock, horror, and investment hysteria are rocking the cryptocurrency world. This is because new US Government subpoenas are adding fuel to a rumor that little-known altcoin Tether and Bitcoin exchange Bitfinex, colluded over 2017 to artificially pump the price of Bitcoin.
Understanding the Current Tether & Bitfinex Situation
For those not already familiar with Tether, Tether is a US dollar exchange rate backed cryptocurrency. This means that in theory, one Tether (USDT) is always equivocal in value to the price of one U.S. Dollar.
Owned (in an obscure way) by Bitcoin exchange Bitfinex, Tether is sending cryptocurrency markets into a tailspin. This is due to evidence that Tether might not have like for like US dollar support. Much more alarmingly, evidence is mounting that millions of Tether were created out of nothing in 2017, in order to intentionally pump the then Bitcoin price.
How Big is The Tether/Bitfinex Problem Really?
Despite being obscurely owned by Bitcoin exchange Bitfinex, Bitfinex itself doesn’t allow people to trade Tether. Over the course of 2017, however, Tether to Bitcoin transactions on Kraken (the only exchange which does permit Tether to Bitcoin trading) started exploding in frequency and volume.
With many trades clearly timed in advance rather than occurring organically, some people looking at the math are arguing that 48.8% of Bitcoins growth in 2017, can be attributed to 91 individual (yet multi-million dollar) Tether to Bitcoin transactions on Kraken.
Why Everything Now Rests on Tether Being Audited
In theory, there is no problem with people using Tether to buy Bitcoin, if that is, Tether really is backed on a one to one basis by the USD. The only problem is that the timing and size of Tether to Bitcoin trades on Kraken, seem to suggest that this simply isn't the case.
Put simply, more Tether was used to buy Bitcoin in November 2017, than the amount of Tether which should have been circulating if Tether was backed by the US dollar. Worse, despite public statements to the contrary, Tether is yet to stand up to a full (and transparent) audit which could put an end to speculation either way.
Why is the Bitcoin Price Falling as a Result of Tether & Bitfinex being Subpoenaed?
Because of suspected fraud, the U.S. Government Commodity Futures Trading Commission has recently sent subpoenas to both Tether and Bitfinex. The good news, in this case, is that soon it should be clear whether or not unbacked Tether was created in order to drive the Bitcoin price higher. The only problem is that because the Tether fraud seems so transparent already, many people are starting to move money out of Bitcoin.
Why the Bitcoin Price Shouldn’t Suffer as a Result of Tether but Likely Will
The saddest part of the current Tether and Bitfinex controversy is that even if unbacked Tether was used to buy Bitcoin in 2017, the current Bitcoin value shouldn’t be affected in any way whatsoever.
Tether as a cryptocurrency is in no way connected to or related to Bitcoin. In fact, as Litecoin creator Charlie Lee, has recently said on Twitter: “If it turns out that USDT is not backed by real USD, the price will crash to 0. This is similar to what happened with BitConnect BCC. It should not affect BTC or any other altcoins. The reason why it does is because people are afraid of it affecting and they sell.”
What Should Cryptocurrency Investors do to Protect Themselves?
The most important thing to note at present is that even if Bitcoin does pull-back by 80% as a result of Tether crashing, it will do so purely because of mass panic selling. This being the case, Bitcoin prices will recover and smart investors would be wise to either hold or buy the dip. That said, anyone owning Tether should start cashing out asap. What is more, users of Kraken and Bitfinex should also consider moving funds away from these exchanges.
At present, Bitcoin is the victim of what looks like collusion between Tether, Bitfinex, and Kraken to defraud their own customers. This being the case, people holding Tether or other funds on these exchanges, would be wise to get out now before Tether, Bitfinex, and Kraken decide to simply close shop and disappear.