Tether, the controversial stable coin has somehow learned the art of survival, especially at times when most of the community is betting against it. The stable coin has been at the center of numerous controversies right from the time of its inception. First, it was the dubious claims over its US dollar reserves, then the Bitfinex saga in the first quarter of 2019 and it has often been accused of manipulating the market and inflating Bitcoin prices. Despite being outset for their false claims and misguiding their customers, Tether somehow managed to not only survive but thrive after every mishap.
In recent years, there has been an inflow of stable coins into the crypto market each of them promising superior functionality, better transparency and value than Tether. However, up until now, none have even come close to the market dominance of Tether. 2019 has not seen many stable coin releases and that is understandable given the ones which were released earlier had not been able to create a market for themselves, mainly because Tether has become an integral part of the current trading ecosystem. Despite the string of controversies and lawsuits, Tether’s market dominance has only become more formidable in 2019.
There has been only one stable coin release this year that too from Binance in the form of Pink Care Token (PCAT) The PCAT stable coin is a part of Binance initiative to provide feminine hygiene products to Ugandan women. The project is backed by 6 crypto companies. The stable coin would be monitored through the same ecosystem which allows people to track their fund which they have donated towards Binance charity.
A stable coin like Tether is at the center of the crypto trading ecosystem, mainly because fiat to crypto trading is still not an option on the majority of the crypto exchanges. So, the investors usually buy Tether from the exchange using the fiat, which is then used to trade in other cryptocurrencies. This is the reason Tether captures a large chunk of the daily trading volumes in the crypto space. To give a perspective, the tether is 8th largest crypto token by market cap but comes in second in terms of the trading volume only behind Bitcoin. USDT accounts for $35 Billion worth in daily trading volume, the next stable coin on the list USDC only accounts for 1/10th of the same amount.
Geminin Dollar Came Close But Failed Badly After A While
Gemini stable coin (GUSD) baked by fiat started out quite promisingly and its market cap stood at $103 M, but as of today it has fallen to a mere $12.5 M. The same has been true for most of the stable coins as their circulation supply has diminished considerably. However, Tether with all its flaws and controversies has managed to surpass all odds, and its circulation supply has been on a consistent rise and it's market cap stands at $4 billion.
Another interesting point to note here is regarding the minting of these stable coins, Tether often issues 10X times its closet competitor. In another word, Tether is the Bitcoin of stable coins. While Bitcoin has a 62% market dominance, Tether captures 98% of the stable coin market. The main reason that investors are not switching to another stable coin is mainly that these stable coins never leave the exchange they are being traded on. So, as long as the tether is available and provides the value, investors do not really feel the need to switch.
The Two Sides Of whether Tether is Responsible for Inflating Bitcoin’s Price
Tether has often been accused of manipulating Bitcoin prices, but the truth to that depends on whom you ask about it. While commentators like David Gerard believe the whole crypto-verse in itself is a scam, and yet he cannot focus on anything else and clearly see the case of manipulation. While the more sane voices of the space like Jesse Powell does not buy the theory. He explains why,
“I don’t have inside knowledge of what’s happening at Tether, but I can tell you that, historically, when you’ve seen growth in the supply of Tether, we’ve seen growth in the supply of U.S. dollars coming onto the Kraken. And other exchanges would report the same,”
Powell makes a very valid point that correlation between the prices of the two does not validate the case of caution. He went on to add further,
“There are days when you see the price going up ten percent a day. You can bet all the exchanges are onboarding fifty to a hundred thousand new users a day. That is what is driving up the price. It’s huge retail demand and all the media attention on it. It’s not Tether.”
Tether is Just a Factor, Bitcoin Prices Are Rising Due To Many Socio-Economic Reasons
The role of Tether in surging Bitcoin price is nothing beyond a mere coincidence, and there are a number of socio-economic factors which are more prominent reasons for its rise. First of all, 2019 was always going to be the year of bulls, and the markets have been bullish ever since the start of the year. The escalating trade wars between China and the US has plunged the global stock market, and institutional investors are looking for a way to safeguard their money, and Bitcoin has emerged as a favorite choice for many.
Apart from the escalating trade wars, investors are losing faith in government bonds and securities as the negative yield has reached the $13 trillion Mark. Thus, Bitcoin becomes the obvious choice for these investors.
The third and most important part is the scheduled upcoming Bitcoin halving in the first quarter of 2020. Historically prices of Bitcoin starts to pump almost a year and a half before the halving of Bitcoin block reward, with that time period being less than one year, it is quite obvious that the prices of Bitcoin would go further up.
Tether has been dubious in terms of transparency from the start, thus their recent debacles really didn't surprise many, as most of the facts which officially came into public domain be it the fact that only 70% of its reserves are backed by US dollars or the fact that among those 70% also a certain portions have been kept in Bitcoin, thus negating the whole concept of stable coins.
Traders are not really worried about the internal working structure of USDT as it only acts as a medium for them to convert their Fiat into a training currency. Apart from that the accusations of manipulating Bitcoin prices also does not hold much ground as there are multiple other factors backing the upward movement of Bitcoin.