- Tether’s refusal to undergo a full, independent audit could seriously damage the cryptocurrency community in the long term
- Bitcoin is still feeling the effects of Silk Road seven years after it shut down
- The wider investing community could end up seeing Bitcoin as tainted by Tether if nothing is done
The Tether situation (FUD, scaremongering, legitimate concern, call it what you will) was once just the preserve of the cryptocurrency community, with few outside the space being remotely aware of the ongoing debate surrounding it. However, with Tether’s market cap ballooning by a factor of four in the past year and more institutional players looking beyond Bitcoin to the wider cryptocurrency ecosystem, the issue of Tether’s legitimacy is leeching to the wider world. Tether has it within its power to end the debate, but the longer it refuses to do this the worse it gets for the cryptocurrency ecosystem.
Sword of Damocles Over Crypto Sector
Anyone who has spent any time in the cryptocurrency space knows about Tether and the questions surrounding it. The issue of what backs USDT tokens first emerged in 2017 when some suspected it of backing Bitcoin’s bull run, and the questions have not gone away. In fact the opposite is true – the dissenting voices have only got louder, especially as the USDT market cap has rocketed from $4.2 billion this time last year to a whopping $25 billion.
Tether has never openly stated what backs each USDT token it mints in its entirety, which is information they have every right to withhold. However, in an industry where trust is in short supply this has proved to be a problem, especially when, unlike other stablecoins, Tether has never had a full independent audit. This lack of an audit has resulted in an ever-weightier sword of Damocles hanging over the cryptocurrency ecosystem.
USDT Issue Troubling Institutional Investors
The issue has grown to such an extent that JPMorgan has taken to warning potential Bitcoin investors about it, which they did in a letter dated January 25:
Tether…has famously not produced an independent audit and has claimed in court filings that they need not maintain full backing. A sudden loss of confidence in USDT would likely generate a severe liquidity shock to Bitcoin markets, which could lose access to by far the largest pools of demand and liquidity.
With the Tether issue now leaching from the relatively closed ecosystem of the cryptocurrency world to the outer investing world, there is an increased risk of Bitcoin and the cryptocurrency sector being unfairly tainted as a result. The reason why many people link Bitcoin and cryptocurrencies to crime is as a result, directly or indirectly, of the Silk Road marketplace. This was held up as the first real use case for cryptocurrencies, a line that the mainstream media has trotted out with glee ever since, resulting in a low-level belief from the masses that Bitcoin is a scam or just something that criminals use.
Silk Road shut down in 2013, yet Bitcoin is still living in its shadow over seven years later.
Tether Can Kill the FUD, But Will It?
Bitcoin has always been accused of being backed by nothing. Unless the Tether issue is resolved soon there is a risk that a new narrative will make its way into the mainstream media and thus into the public at large – Bitcoin is no longer backed by nothing, it is backed by billions of fake dollars. Doesn’t sound much better does it?
The truly grating part of this scenario is that Tether has it within its power to end the entire debate and shut down all the naysayers. All they need to do is undertake a full, independent audit instead of so-called proofs that have very little merit. And yet they refuse to do, four years after the questions first began.
Whether the Tether FUD is justified or not is not the point. The point is that a scratch can turn into a wound which can in turn poison the entire body if left untreated. Right now the wound is beginning to turn septic, and the longer Tether ignores it the worse the ramifications will be for themselves, Bitcoin, and the entire cryptocurrency industry.
