When a cryptocurrency drops about 10% in a week, it usually doesn’t mean too big of a deal. But when that cryptocurrency is a “stablecoin”, things can be very serious. Especially when it’s a stablecoin on which entire crypto market relies to a very large extent. This is precisely what has been happening since last week. The value of Tether has dropped as much as 10% over the course of last 7 days, bringing the price of one USDT token to about $0.96, and now the fall of this stablecoin has started putting a toll on the entire crypto market. Over the course of last few hours all major cryptocurrencies – including Bitcoin – have been highly volatile. And things are expected to remain this way until Tether’s price rebounds to a certain extent.
The events that led to this fall in the price of Tether are as follows:
- First is the failure of Bitfinex (Tether’s parent company) to publish an audit. The company has never been subject to a transparent 3rdparty audit, which has overtime instilled the fear in investors that Bitfinex may not be backing up its Tether stablecoin with adequate US dollar reserves.
- Thanks to this kind of non-transparent behavior, in the recent days Bitfinex has also struggled to find a banking partner. A few days back we had heard that they’ve found a friend in HSBC Bank, but things didn’t work out. This led to Bitfinex suspending fiat deposits.
- There have also been rumors that SEC or some other authority may forcibly shutdown Tether for not submitting to an audit and other irregularities.
All these reasons and their impact came full circle in the recent days when a photoshopped document on Twitter suggested that Binance is considering to remove Tether from its platform. Though Binance was quick to dismiss this rumor, a steep fall had occurred in the price of USDT by the time they issued a statement. This fall might’ve triggered the panic button of crypto traders and investors as they would’ve realized that Tether can collapse anytime. As a result, majority of them would’ve started dumping Tether and buying other stablecoins in its place.
There’s a good chance that the price of Tether may rebound in the future, but by then the damage will be done. Those who shift to other stablecoins like USDC, TUSD, GUDC and PAX are highly unlikely to go back to Tether once again until company reestablishes the trust it has lost. Let’s see whether that happens or not!