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Is Tether a problem or is it the Bitcoin savior?




Over the weekend, Bitcoin took a pretty substantial hit that saw the world’s first ever Blockchain and cryptocurrency hit lows of about $5,880. Fortunately, however, this decline did not last long and Bitcoin’s price was able to bounce back relatively fast above the $6,000 neighborhood.

On the other hand, while Bitcoin and the rest of the coins were crushing, Tether (also known as the stable coin) was on an opposite bullish trend and for a good reason. According to reports, Tether printed over $250 million dollars worth of USDT over the weekend. Given that Tether’s USDT is pegged to the dollar by a ratio of 1:1, a total supply of $250 million was injected into the market at the point of the decline.

As a result, Bitcoin and the rest of the cryptocurrencies were able to bounce back from the bloodbath in a turn of events that raised concerns and opinions over Tether’s contribution to the market behavior. For some onlookers, the whole decline experienced over the weekend was a plan orchestrated by Tether’s whales in order to buy BTC at its lowest price. Others believe that Tether’s injection of $250 million into the market is nothing short of a god sent magic-bullet that saved the entire market from further decline.

Tether’s checkered past

Tether is not new to controversy. The US Dollar backed cryptocurrency has featured in the headlines for its connection to Bitfinex, a crypto exchange platform accused of using Tether to buy Bitcoin during low demand and later pumping the price to make a profit.

In fact, an academic paper was released earlier this month alleging that Tether was used at the end of 2017 and at the beginning of 2018 to pump BTC’s price to the $20,000 region. Since this news hit the crypto airwaves, lots of concerns have risen over the legitimacy of Tether’s USDT and its influence in the market.

Furthermore, Tether and Bitfinex have earlier been issued with subpoenas by the US CFTC (Commodity Futures Trading Commission) in regards to the above concerns. Plus, after claiming to have lost over $31 million in a coin heist last November, the market was shaken into a crash with Bitcoin and Ethereum taking the most from the hit.

Here is why some people are worried

The main purpose for Tether’s USDT is to be a stable coin that acts more like the federal reserve of the crypto industry since it’s backed by the US dollar on a ratio of 1:1. This basically means that you can exchange your USDT for $1. With previous concerns being about the lack of actual dollar reserves on Tether’s vaults,  critics have argued that Tether’s USDT tokens are created from thin air with the purpose of pumping the price of Bitcoin every time there is a dip in the market.

In fact, various market analysts have identifies that Tether’s printing of new USDT tokens tends to coincide with a dip in the price of Bitcoin, giving the company an advantage of buying Bitcoin at its lowest price. To back up this claim, an academic paper published by two academics from the University of Texas after a 2-year study of Tether’s market activity said that Tether’s price patterns tend to mostly be “consistent with supply based hypothesis where Tether is used to provide price support and manipulate cryptocurrency prices”.

Is there another explanation for Tether’s USDT market behavior?

Well, as it turns out, there is actually another alternative explanation and even though Tether limited has strongly denied claims of manipulating the market, all evidence points to a different direction. With the recent market decline last weekend, Bitcoin, Ethereum and the rest of the coins in the market were able to recover right after Tether, once again, injected $250 million USDT tokens to the market.

Charlie Lee, the creator of Litecoin, on the other hand, had a different explanation of what exactly was happening. In a post on twitter, he mentioned that:

Generally, this has been a precursor of the price going up. Tether gets printed when people deposit USD and get USDT back. This USDT will then be used to buy crypto. This is similar to someone depositing $250MM to exchanges. Of course, that doesn’t mean they will buy right away.

However, he also encouraged people to do their own research. For now, the verdict is still out on whether USDT is to blame for market crashes.

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Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Global Coin Report and/or its affiliates, employees, writers, and subcontractors are cryptocurrency investors and from time to time may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency and read our full disclaimer.

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