USDT is a stablecoin allegedly pegged to the dollar on a 1:1 ratio. According to data from OmniExplorer, on August 11th Tether issued a fresh batch of $50 Million in USDT and another batch of the same amount on August 14th. The stablecoin’s market cap has fallen slightly over 300 million in the past month, from highs of 2.7 billion down to 2.4 billion. There has been a substantial amount of controversy surrounding the stablecoin, with some major players in the crypto world suggesting it has been used for Bitcoin price manipulation. Others have observed that shortly after more USDT is issued into circulation the price of cryptos seem to spike – this causes the fear that USDT is used for price manipulation.
A Constant Source of Controversy
A study conducted by the University of Texas suggested that the Bitcoin rally in December 2017 was impacted by a “conscious strategy to provide price support” using USDT. In addition to this, there have been a number of claims suggesting that Tether doesn’t in fact hold enough USD in reserve to compensate all USDT hodlers should they all wish to withdraw their funds at once. However, this theory was quashed by an external audit by Freeh Sporkin and Sullivan LLP – a US based law firm – which confirmed that Tether does have enough reserves of USD to compensate all investors.
USDT Isn’t a Bitcoin Price Rise Precursor
Every time a new batch of USDT is issued, the price of Bitcoin does rise slightly. With the most recent issues of USDT, the price of BTC jumped by around $300. A lot of people within the crypto world have decided to put the two events together and are using it as an investment strategy. While the two events are linked to a certain extent, using it as an investment strategy is certainly an unwise move.
A new issue of USDT means that people have converted their fiat USD into the stablecoin. This then implies that these investors are going to go out and buy other cryptos, meaning there is buy-side demand for a handful of cryptos, and thus will slightly drive up the price. So, while there will be small gains in a handful of cryptos, these gains won’t drive a bull run or indicate a recovery in price. Bitcoin has continued to fall in price following the issuance of USDT $100 million, clearly showing bull runs and USDT aren’t correlated. Back in June, Tether issued USDT $311 million and similar short-term gains were experienced.
Other Stablecoins Being Created
Tether no longer has total control over the stablecoin market. Stasis – a Maltese crypto startup – has launched its Euro backed stable coin named EURS. The EURS is the first Euro pegged stablecoin and gives European investors an alternative safe haven cryptocurrency that will protect them from fiat price swings, mitigating additional investment risks. In addition to Stasis, Circle believes that every fiat will eventually have its own stablecoin and it is slowly working to create these stablecoins through strategic partnerships.
The stablecoin market is booming as it provides a quick, cheap, and easy way for crypto investors to move money out of Bitcoin and other cryptos without paying excessive withdrawal fees. With the crypto markets remaining in a downward trend, more investors will potentially be turning to take profits off the table by moving them into stablecoins.