Crypto Market Nosedives $11 Billion, Tumbles as Tether (USDT) Issues Come Back to the Fore
What a difference a day makes. Crypto may be many things, but boring is one thing it most definitely isn’t. Today, we all woke up to red candles across the board, a BTC flash crash that hit $4300 on Kraken, and declining alt prices that are starting to head back to lows that many hoped were well in the past.
Currently, Bitcoin is sitting at $5158 (Bitmex Pricing), which is far from disastrous. However, the reason behind the market-wide selloff should not be taken lightly. In essence, the market loaded up on another round of Tether FUD, although only time will tell if this time it’s the real deal or not.
On Thursday, a press release was made public by the New York Attorney General, Letitia James, in which she alleges that Bitfinex, one of the largest and most well-known crypto exchanges in existence, was using Tether reserves to hide a gargantuan $850 million shortfall. Both Bitfinex and Tether are operated by iFinex Inc.
If the NYAG’s claims are true, then not only are Tether users’ funds being employed to hide the fact that Bitfinex is short on cash, but that Tether’s own reserves are being significantly depleted through the loan and that nothing is backing at least $850 million USDT.
Tether hit back at the NYAG’s office to state that the claim was false and that the funds in question were seized and being safeguarded. However, the response stopped short of reassuring the public that each USDT is currently backed by fiat cash in reserve and also went on to state that Bitfinex was considering taking lines of credit from Tether’s reserves anyway.
What does it all mean for the cryptocurrency market? USDT is a cornerstone stablecoin with a nearly $3 billion marketcap. On high volume days, USDT does over $14 billion in 24-hour volume and is the major pair against which BTC, ETH, XRP, and other leading cryptocurrencies are traded. If there are doubts about Tether, then there are fundamental doubts about one of the most significant funding onramps for the market in general.
Owing to this, what happens with Tether is important and worth paying close attention to. A positive in this seemingly bleak and confusing situation is that many stablecoin alternatives have popped up in the last year. USD Coin, True USD, Paxos Standard, and the Gemini Dollar have all seen a huge influx of volume as investors flee Tether in the search of audited stablecoin shelter.
Before this news hit yesterday, we decided to sideline 10% of our ‘paper-traded crypto portfolio' due to bearish technical indicators. Once the the tether FUD hit, we decided to reduce exposure further by roughly 50% of our portfolio. Our opinion is that reduced exposure to crypto when FUD is circulating is the best approach in terms of risk management.
There will certainly be more opportunities to be profitable in this space. We are not inclined to chase profitability during this period of uncertainty that is igniting high levels of volatility. Currently we are still 40% net long on crypto. We will update you as our exposure levels change.
We turn our eyes towards $5k as crucial support for $BTC, if that is unable to hold on a daily time frame, we assume continued downside and will hedge ourselves neutral or short in terms of crypto exposure.
Issues like these are the reason it pays to trade with a seasoned group of market analysts. Check back with us to stay on top of this and other complex market events as they unfold.
Live Bitcoin (BTC) Price:
1 BTC/USD =$50,573.2940 change ~ 4.40%