In our previous posts, we warned about de-pegging of the Tether stablecoin from the U.S. dollar. The precedent was set when Luna stablecoin fell 99%, spilling to other tokens and temporarily breaking the peg between the USDT and USD. With the recent crash in the cryptocurrency market, we remain very pessimistic about its outlook.
Illustration 1.01 The picture above shows the precedent that took place on 12th May 2022. The Tether token can be seen losing almost 6% of its value against the U.S. dollar.
Already back in July 2021, Jannet Yellen, the U.S. treasury secretary, summoned Jerome Powell and the head of the Securities and Exchange Commission to discuss Tether and the danger it poses. Then in October 2021, the Commodity Futures Trading Commission (CFTC) filed and settled legal cases against iFinex Inc. , BFXNA Inc. , and BFXWW Inc.
The actual text (only excerpts) from the CFTC website 1st excerpt “The Tether order finds that since its launch in 2014, Tether has represented that the tether token is a stablecoin with its value pegged to fiat currency and 100% backed by corresponding fiat assets, including U.S. dollars and euros. However, the Tether order finds that from at least June 1, 2016 to February 25, 2019, Tether misrepresented to customers and the market that Tether maintained sufficient U.S. dollar reserves to back every USDT in circulation with the “equivalent amount of corresponding fiat currency” held by Tether and “safely deposited” in Tether’s bank accounts. “
2nd excerpt In fact Tether reserves were not “fully-backed” the majority of the time. The order further finds that Tether failed to disclose that it included unsecured receivables and non-fiat assets in its reserves, and that Tether falsely represented that it would undergo routine, professional audits to demonstrate that it maintained “100% reserves at all times” even though Tether reserves were not audited.
3rd excerpt “Tether held sufficient fiat reserves in its accounts to back USDT tether tokens in circulation for only 27.6% of the days in a 26-month sample time period from 2016 through 2018. “
We raise a word of caution as to the question of stablecoin safety - in this particular case of Tether.
Illustration 1.02 The picture shows another anomaly in the price of Tether, but this one started to occur yesterday.
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.
Just out of curiosity, if Tether were to fail wouldn’t that mean almost the entirety of crypto eco system would collapse? Meaning even if we were to be in a short position for BTC we would not be able to cash out the appropriate sum in USD due to Tether being unpegged like it did with UST.
dogetainment
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BTW thx for all your great analysis’ your so far always spot on. Cheers mate.
Tradersweekly
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@dogetainment, Thank you so much for your comments and nice words. I truly appreciate you reading my analysis. Well, I think I am not qualified enough to tell you the exact answer. Although, the current total market cap of all cryptocurrencies is slightly below 1 trn. USD (it went below just recently). BTC is about 443 bn. USD in market cap, ETH is about 148 bn. USD, and Tether is about 78 bn. USD of that. Then, the next two biggest coins are USDC with about 54 bn. USD in market cap, and BNB with about 37bn USD. The rest of the coins are much smaller in terms of market cap. So at the moment, Tether comprises about 6-8% of the total market cap of all cryptocurrencies, which is not insignificant. Therefore, I think we would see a dramatic impact on the market; however, it is hard to say whether we would see an absolute collapse among the top five cryptocurrencies. I do not expect BTC and ETH to disappear; however, I can not say that about the rest of the tokens. Thanks again for the question; what is your opinion? How would it play out?
dogetainment
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@Tradersweekly I am not highly educated in economics and trading but I do day trade for a living based on a simple fundamental psychology: value of an asset. As you have stated multiple times, due to the recent Luna incident and additional restrictions countries will push on crypto, the fundamental ‘value’ of it being decentralized and having no government oversight as it was initially lauded has pretty much vanished, hence many investors already left and MS is on a verge of margin calling their debts (if they hadn’t done it already) I think tomorrows announcement will have a little, but not much negative impact on crypto overall but not as much as it did on Monday (I see it as a prelude before the announcement) Literally all signs point to a very very bear year and honestly I can’t imagine any kind of news that would catapult BTC to what everyone is dreaming of (100k). There just isn’t any ‘value’ to crypto nowadays so I find it best to day trade as I have had for the past 3 years and just follow the trend. Your analysis is pretty spot on with good reasoning and this gives me an additional confirmation for my trades. Appreciate it.
Tradersweekly
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@dogetainment, Thanks for sharing your view. I agree that we will see a pretty bad bear market throughout the rest of 2022.
jdo85
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what is the actual reason behind this depeging of stable coins, is that the dollar itself gets stronger by the day ? i dont believe that thether wil depeg i think it is manipulation at it finest, to create so many fear that people stay away from crypto
Tradersweekly
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@jdo85, Well, that could be one reason. My bet is that Bitfinex does not have the money to back all USDT tokens; eventually, I think regulation will require Bitfinex to back a substantial portion of its tokens.
Future_Wei
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If usdt really crashes, that will be bad for crypto whole market , but what other stablecoins will the exchanges use other than busd and usdc, and will we have the goverment currency, CDBC? that's a really great concern for everyone of us, love ur deep explanation.
Tradersweekly
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@Future_Wei, Yes, I am curious how these government tokens will work and how they will be received by the public. Thanks for the comment.
Future_Wei
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@Tradersweekly, Actually, I hope these tokens won't be successful, imagine like I need to convert USDT/BUSD that I hold for so long for something "new" , just not used to it, hope u know what I mean. Welcome!