Stablecoin is referred to a model where a Crypto is tied to the value of other assets. The fact that Tether (USDT) has revised its US Dollar backing downwards from the $1 per Tether Coin is already having an impact on other Cryptocurrencies such as Bitcoin. This is because the Digital Asset plunged to $0.93 before an auto-correction in the market made the price to rebound to $0.97 following the event that occurred in the previous week.
On the other hand, Bitcoin, Ethereum, and Ripple gained at least 7% following the incident as per the CoinMarketCap data. However, it is the impact on Bitcoin that is attracting most of the attention as Bitcoin is considered the most attractive Digital Asset for investors, especially after a fall out in other Cryptos.
Tether Appears To Be Unstable
Indicators point to multiple red flags surrounding Tether. Firstly, there is the issue of lack of transparency on USDT. This factor is making investors sell off their Tether as they cannot ascertain whether the Blockchain is under sound management.
For instance, the revision of $1 to 1 USDT is raising questions of whether Tether has enough reserves to secure its Digital Coins. Unfortunately, there is no credible way in how the company is addressing the concerns, further worsening the jitters. Additionally, the liquidity issues of Bitfinex, the largest shareholder of Tether, is under question following the collapse of its banking partner-Noble Bank.
All these concerns and the lack of concrete answers attest that there are underlying issues in Tether that needs to be addressed in urgency. Since all investors speculate for profits, Tether is deemed as a risky investment in the short run.
There Are Many Alternatives To Tether
According to Mati Greenspan, a senior market analyst at eToro- a social trading platform, Tether’s volume of trade has been increasing since its inception. However, the events of the past few weeks have reversed this trend.
Tether’s woes are compounded by the fact that there are other stablecoins such as TrueUSD (TUSD), USDCoin (USDC), Paxos (PAX), and Gemini Dollar (GUSD) that are stabilizing this Crypto market segment. Also, the fact that these assets have the support of banks and are regulated means that investors are assured of sound management.
In another perspective, with the troubles of Tether, stablecoins may experience low trusts as investors may start to question the truthfulness of facts. The greatest beneficiary of these woes will be Bitcoin as it is already an established Digital Asset that is not only transparent but also more stable as it is maturing; Bitcoin can withstand market shocks such as negative publicity, strict regulations, etc.
In The Long Run, Tether’s Future Is Guaranteed
In the short term, Tether investors are selling off their USDT for Bitcoin. For instance, from the onset of the Tether concerns, Bitcoin has surged to the current level of $6, 525 and the prospect of a bull run is on the offing partly because of the Tether factor.
However, according to Simen Reynolds- a blockchain architect and the CTO of Zoom, the changes in Tether and the flight to Bitcoin is just a normal reaction when a stablecoin undergoes sudden changes. Additionally, the CEO of Cayman-based Invictus Capital, Daniel Schwartzkopff, believes that Tether is here to stay as it is built on a “smart, profitable business model”. He says that the flight to Bitcoin is due to fear, uncertainty, and doubt.