In a sudden move on Oct. 15th, Tether, the USD-pegged stablecoin, reached an all-time low across major exchanges as insolvency rumors began circulating. This sent the cryptocurrency market into a frenzy as traders fleeing Tether pumped bitcoin to highs of $7600. Bitcoin and other top cryptocurrencies have since backed off those highs, however.
Currently, Tether is trading around $0.96 on Binance, but it was previously seen trading at $0.86 on Bittrex and Bitfinex. Meant to hold its 1:1 value, Tether has shaken investor confidence and has brought back fears of its lack of transparency.
Rumors that Tether’s insolvency was imminent paired with a Binance delisting rumor fuelled the downward spiral for the stablecoin.
Fear, Uncertainty, and Doubt
On October 11th, Bitfinex, the creator of tether, announced they were ‘pausing’ fiat deposits to their exchange. On October 14th, cryptocurrency exchange Kucoin announced that they were disabling Tether deposits and withdrawals.
Once the price of Tether dropped below $1.00, the market reacted. Specifically, exchanges that allow traders to use Tether exploded in growth, leading many to believe they were amidst the beginning of a bull run. Fiat exchanges such as Coinbase and Kraken do not allow traders to use Tether, and were significantly lagging behind the price of bitcoin; at times, nearly $1,000 behind exchanges such as Bitfinex and Binance.
Once the downward spiral began, instigators began posting photoshopped pictures of fake Binance announcements stating they were preparing to delist Tether. The rumor gained so much traction that Binance responded and decided to temporarily suspend the withdrawal of Tether. This move catapulted bitcoin and other Tether-paired altcoins as much as 16% as many investors abandoned Tether.
A major sticking point to Tether worries was the banking partner of Bitfinex. Recently, the Puerto Rican-based Noble Bank found itself on the edge of bankruptcy, and this forced the Hong Kong-based Bitfinex to look elsewhere for a banking partner.
It soon found one in HSBC, a London-based banking giant. Bitfinex made a private account with HSBC under the name Global Trading Solutions, and the worry is that HSBC does not know the account is related to the exchange. The rumor of Bitfinex becoming insolvent forced Bitfinex to respond to the community.
Regulated Stablecoins See Major Boost
Regulated stablecoins such as Paxos Standard, Gemini Dollar, USD Coin, and True USD saw significant growth against Tether. Investors showed their lack of confidence by selling a devalued Tether into other regulated stablecoins at a premium rate. All-time highs were hit earlier today when True USD saw $1.25 and Paxos $1.20.
These stablecoins are all regulated and pegged 1:1 to USD. It also came as a surprise that during the Tether selloff, exchanges such as OkEx and Kucoin immediately began offering these regulated alternatives.
What Comes Next?
The situation is still unresolved, and the price of bitcoin is continually fluctuating. Bitfinex has reopened fiat deposits and withdrawals, and Kucoin has re-enabled Tether withdrawals. It is anyone’s guess which direction the price of bitcoin and other cryptocurrencies will go amid this extremely volatile situation.