Tether and turbulence: the skeleton in the cryptocurrency closet (Bitcoin, Ethereum, Solona) – Forbes France

Despite the meteoric increases of many cryptocurrencies such as Bitcoin, Ethereum or Solana in 2021, there is a small atomic bomb dozing at the heart of this ecosystem. If it explodes, the explosions will be as numerous as they are rapid … and could create a new buying opportunity!

In fact, although the French-speaking media speak very little about this news, it is nevertheless a true skeleton in the closet of the crypto industry. And for once, it’s not a questionable shit coin or a questionable exchange, but a stable coin.

The principle of stable coins

Stablecoins are cryptocurrencies that maintain a price indexed to another currency. For example, each token of a dollar-indexed stablecoin is theoretically worth a dollar permanently (sometimes with differences of a few cents, but this is anecdotal).

If you are only interested in cryptocurrencies for speculation, it is not very interesting, but the advantages of stablecoins are quite numerous: they offer all the advantages of the blockchain (minimal fees, speed of transactions …) without suffering from sometimes maddening crypto volatility more speculative like Ethereum or Bitcoin.

Therefore, stablecoins are the dream tool for anyone who wants to transfer money abroad, people excluded from the banking system or just people frustrated by all the hassles of the banking system. Some institutions are still holding out, but the stablecoin market is likely to be worth several billion euros in the not too distant future.

The counterpart of this financial tool is that the issuer must have 1 dollar in the bank for each token placed in the market. Thus, even in the hypothesis of a massive sale of all tokens, there will always be a dollar for each token to maintain its price … except when this is not the case. And this is where the problems come in.

Tether, a great fraud in the form of stable coins

If you are new to Tether, it is simply the most widely used stablecoin on the planet. Not less than 78 billion dollars in circulation! If you’ve read this article from the beginning, you can deduce that the Tether company has $ 1 per token, so total assets of at least 78 billion.

The problem is, no one can find those billions.

The company claims, for example, that it has more than $ 30 billion in short-term business loans. If you are familiar with this sector, that would make Tether the seventh player in this market. With one catch: most bankers in this industry have never heard of this business. In a very small universe where everyone knows each other, it is unlikely.

Added to this are the accusations by the New York State Attorney General’s Office, who accuses the Bitfinex exchange of using Tether to hide the absence of $ 850 million since mid-2018. And an investigation showing that Tether tokens They have been used to manipulate prices on the Bitfinex and Kraken platforms. Also, it is useful to remember that Jean-Louis van der Velde is at the same time CEO of Tether and Bitfinex …

It is always easy to say that there is no smoke without fire, but something is wrong anyway. And it has been rumored for years that Tether is lying about its finances … which ended up prompting the US authorities to react.

Tether vs USA: face to face with the Federal State

In July 2021, Treasury Secretary Janet Yellen called on financial regulators to quickly develop regulations relevant to stablecoins. And a few days ago, the US Senate Banking Committee sent a letter to the CEO of Tether, with requests for specific information about its finances, operations and processes.

With a specific date for the response period: December 3, 2021.

If Tether does not comply with this request, regulators may decide to cut the banking relationships of the company and its executives. The probable immediate consequence: a collapse in the price of Tether … which should be followed by a collapse of many other cryptocurrencies.

Also, even if the company offers a transparent response, the market may not take the news well. Let’s not forget that Tether is an important source of liquidity for the cryptocurrency market. If the price of Tether suddenly fell, it is likely that a panic will take hold of speculators.

In fact, when we see that a new variant of Covid-19 is enough for Bitcoin to collapse (while the unknown crypto Omicron has exploded!), We may be concerned about the effects of such a procedure on investor confidence. And in a fast-paced industry, the domino effect is even faster than elsewhere.

What conclusion for crypto investors?

While the result of this offensive launched by the US state on Tether is imminent, neither the media nor the market seem very concerned about this news. This year’s astonishing achievements have made the idea of ​​a digital gold rush correct and perhaps erased the fear. Also, many novice investors may have never heard of Tether (or are ignorant of it as it is not a speculative tool).

But the risk is real and it may be worth considering pocketing at least some of your winnings in some cases:

  • If a large part of your wealth is invested in cryptocurrencies;
  • If you cannot afford to lose your investment;
  • If you need this money in the near future for a planned expense.

For investors with a longer perspective (at least 3-4 years), they can hold on and bite the bullet while they wait for it to pass. Why not try playing yo-yo back and forth? Because no one can predict market movements on the same day!

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