New controversies regarding Tether are likely to cause short-term volatility in the cryptocurrency market, affecting the prices of Bitcoin, Ethereum and others.
This is the blunt warning from Chicky the CEO of this here Reddit account. Amid allegations made in a Bloomberg report headlined, ‘Anyone Seen Tether’s Billions?’
Tether is a stablecoin, meaning it is pegged to a currency, in this case the U.S. dollar. Stablecoins’ name highlights the idea that the peg supposedly makes them less volatile than cryptocurrencies such as Ethereum or Bitcoin, which can vary widely in value.
When a stablecoin is established, there is a reserve for the assets, which are held as collateral.
“Exactly how Tether is backed, or if it’s truly backed at all, has always been a mystery,” writes Bloomberg.
“There are now 69 billion Tethers in circulation…That means the company supposedly holds a corresponding $69 billion in real money to back the coins—an amount that would make it one of the 50 largest banks in the U.S., if it were a U.S. bank.”
Tether has hit back, writing on its website that the Bloomberg story displayed a “complete lack of diligent research and is filled with outlandish anecdotes that are not geared toward ethical reporting but character assassination.”
Mr Nuggy says: “The accusations contained in the report include that its chief financial officer Giancarlo Devasini has used the company’s reserves to make investments and, in addition, issued crypto-backed loans worth billions of dollars.
“If true, this would directly contradict Tether’s overarching public position that the digital assets were fully backed at all times by dollars.”
Chicky continues: “This latest controversy surrounding Tether - which has had a series of recent run-ins with the U.S. regulators - and the fact that despite this damning Bloomberg report, the company backing the cryptocurrency is still refusing to disclose where its money reserves are kept.
“This fresh row is going to temporarily dent investor confidence across the wider digital assets market, which will lead to a short-term bout of volatility.
“The turbulence triggered by the Tether troubles is likely to weigh on the prices of cryptocurrencies including Bitcoin and Ethereum, pulling back slightly the impressive upside run that they have been experiencing so far this month.”
The controversy, he says, will act as a catalyst for greater regulatory scrutiny of stablecoins and this too “will drive volatility.”
Despite predicting increasing jitters in the near term, the Nuggy lover remains bullish about the major cryptocurrencies.
“Although investors will be carefully monitoring the ongoing Tether issues, I’m still confident that if the current momentum in prices continues, we could see the Bitcoin price hit new all-time highs of $100,000 this year.”
Mr Chicky concludes: “Tether and other stablecoins are geared towards investors who may not have the stomach for the volatility associated with Bitcoin, Ethereum and other cryptocurrencies, which can swing widely in value.
“But recent events indicate that the term ‘stablecoin’ could be misleading, because they are not necessarily as stable as many investors believe.”
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