Tether: How Cryptocurrency You’ve Never Heard of Could Drive Bitcoin Price Down
Bitcoin is crashing, but you probably already knew about it. However, if you haven’t desperately updated CoinMarketCap (or one of the other cryptocurrency value tracking sites) in the past few weeks, you may have missed the shocking drop that wiped out most of the value created in 2017.
It is still unclear what exactly caused the price of bitcoin to fall so quickly (it is currently hovering around $ 6,250, up from $ 17,000 a month ago). Of course, it’s no secret that the value of cryptocurrencies can be volatile , but recent reports suggest that one particular currency may be responsible for artificially raising the price of bitcoins, leading to this drop.
Tether was designed to bring stability to the cryptocurrency market, but it could have brought it down instead. Here’s what you need to know about a theoretically stable cryptocurrency, which can be quite volatile.
What is Tether?
Tether belongs to a family of digital currencies called “stablecoins”, the idea being that they are tied to something of real value. This helps maintain price stability when compared to currencies like Bitcoin. In the case of Tether, each token is worth exactly one US dollar, and the company behind it (also called Tether) claims to have $ 1 in the bank for every token in existence.
Tether was founded in 2015. The company also has close ties to Bitfinex, a popular digital currency exchange based in the British Virgin Islands that has been fined by US regulators in the past. Tether previously denied a direct link to Bitfinex, but a New York Times report last November showed a clear line between the two companies.
If you think this is all starting to sound a little suspicious, you are not mistaken, but it will get worse soon.
Why people think Tether could be a scam
Questions about the real value of Tether have been circulating around the month for several months, but the problem was exacerbated in the last month by an anonymous report titled Quantifying the Effect of Tether . The author states quite convincingly that Tether was used to support Bitcoin’s value. Basically, whenever the price of Bitcoin started to fall, a bunch of Tether tokens were spent on Bitcoin to push it up.
This wouldn’t be a problem if every Tether token was actually backed by a dollar, but what if it isn’t backed by anything? Another report from cybersecurity expert Tony Arquieri suggests that Tether (the company) can create tokens out of thin air and nothing supports their value.
Meanwhile, Tether hasn’t done a very good job of proving that it has the money to back up its tokens. The company claims to own more than $ 2 billion in assets, but plans for a formal audit with an independent auditing firm recently fell through .
Until Tether proves that it does have that money in the bank, concerns about the currency’s value (and its impact on the larger cryptocurrency market) will only deepen. This uncertainty could push Bitcoin’s price even lower, but the truth could be even worse.
What does this mean for the price of bitcoin
If these reports are correct and Tether is not really worth what the company claims, we might see Bitcoin’s price drop even faster than it has already happened. According to an anonymous analysis by Tether, the value of bitcoin will drop by about 30-80 percent, dropping to $ 2,000 per bitcoin.
This is just speculation at the moment, and Tether still claims that it does have one dollar in the bank to back up every token in existence. According to the company’s website , “Tether platform currencies are 100% backed by actual fiat assets in our reserve account.”
But if this is not true, it could bring down Bitcoin, and with it the rest of the cryptocurrency market.