When both Bitcoin and altcoins are going down, it usually means cryptos are being traded for fiat currency. Right? Almost.
There’s a curious cryptocurrency called Tether (USDT), which supposedly represents one coin for each US Dollar (USD) deposited in accounts in Asia. Right now Tether is one of the few currencies which gained value against Bitcoin, which means investors are moving their BTC to USDT.
Hundreds of millions of U$ have been issued in Tether, a fact which has raised questions from several sources, especially about whether they really did hold 1:1 USD to USDT funds in traditional bank accounts.
The Tether transparency page currently shows a U$ 1,78 billion market cap, which is impressive considering that there must be this equivalent amount in U$ cash sitting idle in bank accounts somewhere.
Who would leave U$ 1,78 billion sitting somewhere just to guarantee the existence of a cryptocurrency? The USDT minting fees are very low and the ROI for this enormous amount of capital is definitely not worth it.
So what’s really behind Tether? Truth is, we don’t know.
A Twitter account by the name of @bitfinexed has been publishing data about Tether for several months now. According to the owner of this account, Tether is an enormous fraud that will blow up in the face of crypto investors sooner or later.
The same warnings were issued about BitConnect (BCC), a service which offered enormous returns for Bitcoin deposits. BCC has now shut down and users are desperate to get their funds out.
Why did BitConnect fold? It’s simple. While Bitcoin was on a parabolic path up, it was easy to guarantee 10% returns on investment. BTC was, after all, going up 20% per week or more.
But when Bitcoin price faced a steep correction in late December 2017 and early 2018, BitConnect could no longer honor the high interest rates they’d been paying until then. And then users started heavily withdrawing their funds. This is the point when the pyramid crumbles.
Tether is about to face the same test.
As we noted, almost every altcoin is in the red right now except for Tether. Which means users are trading their Bitcoins for USDT in hopes of cashing out to U$ Dollar. And this is where the Tether system will really get tested.
Once users start withdrawing from USDT to USD, the Tether reserves will be tested. If there’s liquidity, then it means that there really were U$ 1,78 billion deposited somewhere. If withdrawals suddenly halt or start taking a very long time to liquidate, then the reader may assume otherwise.
Work & Learn