- Tether has minted 13.5 billion USDT tokens this year, more than quadrupling its market cap this year
- In 2017, Tether was accused of manipulating the Bitcoin price by printing unbacked USDT tokens
- The pattern seems to be repeating this year, with the Bitcoin price moving up in line with USDT token minting
The cryptocurrency run of 2017 was driven, some argue, by the mass printing of USDT tokens which were then used to buy Bitcoin on Bitfinex. There are strong arguments against this theory, not least Tether from Bitfinex themselves, but two years later the pattern is repeating – Bitcoin is pumping while USDT minting is going through the roof. Is the Bitcoin price once again being driven by USDT’s minting machine?
2017 Rise Prompts Conspiracy Claims
2017 was a watershed year for USDT. The market cap of the stablecoin started out at $10 million in January and ended December thirteen times higher at $1.3 billion. Similarly, Bitcoin started 2017 with a $15.45 billion market cap and ended it worth $249 billion:
Accusations of links between USDT printing and the Bitcoin price were, to many, based on nothing but assumptions, but in June 2018 these accusations were formalized by John M. Griffin and Amin Shams of the universities of Texas and Ohio respectively. Griffin and Shames published a paper that offered compelling evidence that Bitfinex and Tether conspired to ratchet up the price of Bitcoin in 2017 by massive minting of USDT tokens which were then used to buy Bitcoin on Bitfinex.
Tether’s Creaky Defense
Tether denied these accusations, maintaining that, “All Tether tokens are fully backed by reserves and are issued pursuant to market demand”, swiftly adding a ‘proof of funds’ section to their website on the back of the report. On the surface, this report, from legal firm FSS, looked like formal confirmation of their fund backing, but contained the following line:
FSS is not an accounting firm and did not perform the above review and confirmations using Generally Accepted Accounting Principles.
Hmmm. Equally as useful is to note that this report, the most recent attempt at an audit the firm has undertaken, was issued on June 1, 2018, when the USDT market cap was $2.5 billion.
2020 Sees Repeat of USDT/Bitcoin Pattern
Fast forward to 2020 and what do we see? The USDT market cap now stands at an incredible $18 billion, with a staggering 76% of that minted this year alone. October saw 2.3 billion USDT tokens minted, more than in the whole of 2019. Meanwhile, the Bitcoin market cap has gone from a low of $93 billion this year to $300 billion, with its biggest increase coming in, yes, October:
The parallel is striking, but Tether has had three years to get its house in order, so everything must be legit by now, yes? No. Tether has still never had a full, formal audit of its books by a registered accounting firm. The FSS report still acts as their sole ‘proof of funds’, despite being over two and a half years and $15.5 billion out of date.
It must be said that there is no direct evidence that unbacked USDT tokens are being minted and spent on Bitcoin, but the similarities are striking. It could well be that the crypto boom of 2020 has seen money flying into Tether from sources left, right, and center wanting a piece of the stablecoin action, but their failure to comment in the astronomical market cap growth is surprising at best and worrying at worst.
If Tether couldn’t adequately account for $2.5 billion in 2018, can they really do so for $18.5 billion?
What Would a Tether Implosion Mean?
The other question is what would happen to the cryptocurrency ecosystem if Tether is indeed minting unbacked tokens? A Tether implosion is one of those black swan events that has the potential to wreak havoc on the cryptocurrency market. If USDT tokens were found to be illegitimate and the company collapsed, the initial response would likely be a boost to big cap cryptocurrencies like Bitcoin and Ethereum as holders fled to anything other than USDT.
This boost would likely be short lived however – the collapse of the third biggest cryptocurrency would shatter confidence in the market, and many would leave it altogether. The Bitcoin price in particular, were it found to have been inflated by unbacked USDT, would suffer a dramatic reversal in price, just at a time when it is growing in stature as a mature, healthy asset.
Tether’s massive printing of USDT tokens this year is only a concern because of the accusations laid at their door since 2017 that they have been unable to completely disprove. A full audit is required in order to gain the confidence of the cryptocurrency community that the injection of $13.5 billion this year is legitimate, and until they do, such rampant token minting only fuels the concerns that the entire enterprise is still built on a house of cards.