The Collapse of Tether (USDT)

Tether, created to simplify cryptocurrency trading and conversions, has a 1:1 ratio of the asset it is “tethered” to. In the case of the US Dollar, one tether is worth approximately $1.00, with minuscule daily fluctuations. This is how is china leading the rise as the strange nature of the coin goes against simple economic supply and demand. Unlike Bitcoin, Ethereum, or other limited-supply coins, Tether has no production cap and an unlimited supply but flat demand, keeping the price at $1.00.

If you have a background in economics, this is a huge red flag. The price control of Tether isn’t sustainable. Furthermore, for each Tether in circulation, there must be one dollar held in reserve backing it.

Holders, skeptics, and large firms have continued to fire backlash at Tether. They fail to release audit records proving that they hold the equivalent amount of USD in reserve as USDT in circulation. The company has refused to be transparent with that information. In January alone, 850 million Tether were produced, however, no records indicate that the dollars held in reserve increased by $850 million. Some people believe these accusations to be unfounded.

But if they have nothing to hide, why hide it?

If this is found to be the case, it could send cryptocurrencies to crumbling price levels. Tether has become an integral element in purchasing coins, removing ambiguity and the need to convert Bitcoin prices to the dollar. If Tether has been just arbitrarily produced, Bitcoin and other coins would essentially have been bought with thin air. Skeptics believe that Tether production has been inversely linked to drops in Bitcoin prices, using Tether to purchase Bitcoin at low prices and sending the prices back up. What would happen next?

If faith was lost in Tether, people would demand their dollars back, supposedly held in reserve. However, there wouldn’t be enough. The possible effects could lead to a complete reversal in the more positive recent public perception of cryptocurrencies. It would further link coins to fraud and illegal activity. Exchanges could topple overnight with billions of dollars vanishing.

Wells Fargo and Bank of Taiwan have already removed support for Tether transactions. Bitfinex, the sister company of Tether, may even completely shut down, taking millions of coins with them. This news comes at a troubling time. If Tether is found to be guilty of fraud, holders of Tether would rapidly dispose of USDT for other coins, temporarily sending coins to new highs, before an inevitable crash.

This is a wake-up call to investors. We must all do our due diligence and be informed investors when investing any amount of money in any asset. Fraud and greedy motivation can dominate this space and it is your own responsibility to protect yourself.