This past week, the cryptocurrency market was forced to work through some bad press regarding one of the biggest service providers, Tether. Reportedly Tether issuers are being investigated by the Justice Department of the U.S. Allegedly, they mislead banks regarding their business’s nature.
But Tether’s Gains Have Almost Disappeared
However, this is not new news. The market, as well, predictably did not have much of a reaction. But something more concerning has been happening since May ended. The growth of Tether is almost nil.
Ever since May ended, the supply of Tether has been stagnant at $64.3Bn. The doldrums, which has now lasted for two months, is remarkable. It is especially remarkable for Tether since the price of the crypto had tripled from 1st January to 31st May.
Allegations saying that real dollars are not backing the crypto have long been an issue for the crypto. It means that the issuers are driving up the crypto prices by issuing units that do not really exist. However, traders either do not care or do not believe it. Till now, the crypt has more or less maintained its comparative level with the dollar, even with all the doubts.
But it is systematically important to question the solvency of the crypto. It might indicate a scenario in which the market crashes. Bitcoin prices might crash if discounted tethers suddenly flood the market.
USDT is unlike other stablecoins such as USDC, which are overseen more directly by regulators from the U.S. Even as USDT’s growth has stagnated, USDC continues to grow. The stagnation is possible because of an influx of investors who are not willing to deal in USDT. This means institutions and professionals.
However, this is not enough to think that such a crisis will infect other stablecoins. As such, USDT’s solvency may not carry the same systematic importance as that of Lehman Brothers. But, the risk remains.
