What to expect for the price of Tether this year.
A “stable-coin” designed to act as a bridge between digital and fiat currencies, Tether’s value is pegged (or “tethered”) to the US dollar. It’s designed to offer protection against the volatility of other cryptocurrencies, and is seen as something of a safe haven when the rest of the market experiences a downturn.
However, there’s been increasing controversy surrounding Tether in recent months, so let’s take a look at what all the fuss is about and what it could mean for the viability of Tether in coming times.
How Tether works
Tether is pegged to the value of fiat reserves at a rate of 1:1. It’s designed to maintain the same value relative to that underlying fiat currency no matter what is happening to the value of other cryptocurrencies. So if you’re wondering what the price of USDT will be relative to the US dollar in the future, keep in mind that it’s designed to stay as close to US$1 as possible.
Each Tether token is meant to be backed by reserves of traditional currencies held in accounts under the control of Tether Limited, the entity that runs Tether. Tether tokens are most commonly pegged to the US dollar (USDT), but there are also tokens pegged to the euro (EURT) and Tethers pegged to the Japanese Yen are in the works.
Tether is designed to offer protection against the volatility commonly associated with cryptocurrency markets. At the same time, it allows fiat currencies to enjoy the ease of transfer and record-keeping ability associated with digital currencies.
Tether price prediction
Tether tokens are designed to match the value of the currency they’re pegged to; with this in mind, there are a broad range of factors to consider when deciding whether or not to buy any Tether.
What could drive Tether’s growth?
- Availability. Tether is available in trading pairs on most major exchanges. This means it’s easy to access and also helps to increase the credibility of USDT in the eyes of mainstream investors.
- Link to crypto. Many cryptocurrency exchanges don’t accept fiat currency. Because it’s pegged to fiat currency, Tether acts as a link between traditional currencies and the world of crypto.
- Volatility in other cryptocurrencies. When crypto markets go through periods of volatility, so-called “stable-coins” such as Tether are seen as a safe haven by crypto holders. By moving some or even all of their funds into Tether tokens, they can preserve the profits they’ve already made and avoid price drops.
- Investors avoiding price drops. In January 2018, on the back of slumping cryptocurrency prices, the value of USDT rose to US$1.03. Because its value remains largely the same even when the prices of everything else drops, USDT remains an option for people looking to “ride out” unfavourable market conditions.
- Bitcoin volatility. In particular, rises in USDT trading volume have been linked to bitcoin volatility. Research released by US investment bank Morgan Stanley in March 2018 revealed that trades between USDT and bitcoin have become more common, with an estimated 14.2% of bitcoin trades paired against USDT, up from less than 1% in October 2017.
- Supply. At the time of writing, CoinMarketCap listed the circulating supply of USDT at 2,217,140,814, and the total supply at 2,580,109,970 USDT. In March 2018, Tether issued another 300 million USDT tokens, following on from the February release of 86 million euro-backed EURT and 61.1 million USDT. As the circulation of Tether tokens grows, and more and more money reportedly flows into Tether’s reserve accounts, the tokens could come to be seen as a replacement for USD and other fiat currencies as a store of value.
What could hold Tether back?
- Bitfinex and Tether. Tether is managed by a company known as Tether Limited, which is owned by the CEO of cryptocurrency exchange Bitfinex. Bitfinex is in turn often referred to as the owner of Tether. However, some analysts have suggested that USDT is probably artificially propping up the value of bitcoin. One report found that about 50% of the total rise in the bitcoin price over a set period of time occurred within the two hours following a new delivery of Tether tokens to Bitfinex. This report and others have therefore concluded that it’s much more likely that Tether is being used to manipulate the price of bitcoin.
- Lack of reserves. Tether claims that all the USDT it issues are backed 1:1 by US dollars held in its reserves. However, in late 2017 and early 2018, Tether has been rocked by criticisms that it may not have sufficient fiat reserves to back the 2.3 billion Tether tokens it has issued – in other words, that it doesn’t have US$2.3 billion. However, it’s worth pointing out that there’s statistical analysis that supports Tether’s claims to have sufficient reserves (though it may need to update its KYC/AML procedures to avoid getting shut down), as well as analysis suggesting that it doesn’t have enough cash reserves. Bitfinex has also promised legal action against one of its most prominent critics.
- Audit or no audit? In response to these suggestions, Bitfinex and Tether came out in the press and promised an independent audit. However, Tether then parted ways with the auditor, Friedman LLP, in January 2018, and the audit was cancelled. “Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable timeframe,” Tether said in a statement.
- Fears of a market crash. A combination of the above problems has led to concerns of a Tether market crash. Considering Tether’s close links to the price of bitcoin, not to mention bitcoin’s importance to the performance of cryptocurrency markets as a whole, this could have serious consequences for the crypto sphere. The fact that Bitfinex and Tether were subpoenaed by the US Commodity Futures Trading Commission suggests that USDT can expect increased scrutiny in coming times.
- Hack. In November 2017, Tether reported that $30,950,010.00 in Tether tokens were stolen from its treasury wallet as the result of a hack. While no customer funds were stolen as a part of this security breach, it could still have an impact on Tether’s credibility among the general public.
Where to buy Tether
Tether isn’t the only stable-coin on the market, and given the uncertainty and questions surrounding USDT, crypto enthusiasts may look to one of those competitors for a safe store of value. Cryptourrencies to watch include:
- TrueUSD (TUSD). This USD-backed stablecoin allows users to exchange USD directly with an escrow account, with smart contracts used to ensure a 1:1 parity between TrueUSD and USD in the accounts.
- Dai (DAI). A cryptocurrency that has its price stabilised against the value of the USD, Dai is created by the Dai Stablecoin System that runs on Ethereum.
- kUSD (KUSD). Kowala’s kUSD is a stable currency pegged to the USD, and features stability algorithms that adjust the currency’s supply based on its price relative to the USD.
- DigixDAO (DGD). This platform offers Digix Gold Tokens (DGX), which are backed by gold bars, on the Ethereum platform.
Beyond 2022: What does the future hold for Tether?
Stablecoins are designed to provide stability and security, offering protection against the notorious volatility of cryptocurrencies. They’re seen as a crucial part of the future growth of the crypto ecosystem – after all, offering loans or transacting with a currency that could fluctuate 25% in one day is simply not practical – but, as yet, no universally accepted and trusted stablecoin has been developed.
Tether has in the past been a safe haven for buyers trying to avoid losses in bear markets, and its widespread availability and easy accessibility make it an important link between fiat and digital currencies. On crypto-only exchanges, Tether is seen as an equivalent to the USD.
However, if it’s to have any viable future as a stablecoin, the concerns and criticisms levelled at Tether in recent times will need to be addressed. With questions remaining about the level of reserves Tether has, not to mention the fears raised by the cancellation of an independent audit, its future is looking decidedly murky.
The concerns are nicely summed up by Juan M. Villaverde from Weiss Cryptocurrency Ratings. After referencing Tether’s failure to provide evidence of sufficient capital reserves he outlines some key facts:
- “Tether is the only cryptocurrency with trading volume that regularly exceeds that of its market cap.
- “This means the entire Tether supply changes hands regularly, sometimes more than once a day.”
- Tether is therefore one of the main sources of liquidity in the cryptomarkets. Liquidity is essential to keep prices stable and enable seamless trading.
- If this source of liquidity suddenly evaporates, the consequences could be big.
“I don’t want to speculate on what the exact sequence of events would be if there were a run on the Tether company — if investors rush to redeem their Tether for U.S. dollars,” he writes.
“Suffice to say that, if the liquidity rug is pulled from under the market, the consequences will not be good.”
Do your own research. There’s no shortage of information out there about Tether’s perceived strengths and weaknesses, so it’s up to you to do some digging and review all the details you can find. However, there are some undeniable concerns surrounding USDT, so make sure you’ve considered all angles before deciding whether to park your money.
At the time of writing, the author holds IOTA and XLM.
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