Is Tether A Great Investment Choice For 2019?
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Tether has quickly risen to become one of the most popular and well-known cryptocurrencies in the last few years.
In short, Tether is a cryptocurrency which has been tied to the US dollar. While it may sound like quite a simple project, Tether is anything but straightforward.
Previously believed to be backed by a 100% reserve, a series of controversies have revealed otherwise.
Are they a wise choice to invest in 2019? Well, let’s just say things are very, very complicated.
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Tether: A stablecoin tied to the USD
Tether is essentially a stablecoin tied to the US dollar. Its ticker symbol is USDT and was originally called Realcoin, however, it was rebranded in 2014 and started trading in 2015.
Its value is tied to the reserve that they have in their bank accounts and every Tether coin is roughly equal to one US dollar. Every time a USD is invested, a Tether coin is created.
The reason Tether was developed is because exchanges don’t want to deal with USD as it involves a lot of US law which can complicate things.
However, the USD is used as an indicator of price across the world. In trading, it is standard practice to measure things against the USD.
Tether is very useful for exchanges who often have problems when transferring money into USD, such as legal issues with banks. This has happened to several cryptocurrency exchanges.
Many banks choose not to work with cryptocurrency exchanges, so it can be difficult for them to deposit and convert funds.
By using Tether, exchanges can reduce risks and speed up transactions.
Exchanges can also price their coins in USD Tether instead of USD because it’s easier for them to move around the value without potential problems and fees.
Tether is also highly useful to traders who want to store value in something secure when the markets are volatile.
Another issue traders can overcome is that of fees. Every time they convert cryptocurrency to fiat currency, they are charged a fee and vice versa.
By using Tether, traders can store their gains in something tied to the US dollar without being charged.
Tether can be used on Binance, Bittrex and Poloniex, which also makes it easier to move funds between exchanges as well.
Of course, Tether is not without problems. Tether is centralised, it is run by Tether Limited which was incorporated in the British Virgin Islands.
This will put off cryptocurrency enthusiasts who believe cryptocurrency should be decentralised.
You can read more about how Tether works from the Tether white paper.
What is a stablecoin?
A stablecoin is a cryptocurrency that is designed not to be volatile.
Volatility is often cited as one of the primary reasons cryptocurrency cannot be adopted by the masses.
In a sense, it has become a tool for investors and not an alternative to fiat money. For cryptocurrency idealists, this is off-putting.
Stablecoins, like Tether, have the highest chance of being adopted by the mainstream as they remove volatility from the equation.
In most cases, stablecoins are tied to the price of another asset. In Tether’s case, the USD.
Does Tether stand a chance?
Such a coin could be very appealing to US lawmakers because it is tied to something that they see as real.
It also removes volatility from cryptocurrency, which can make it more likely to be traded and used in real life.
Tether is primarily used by exchanges, but traders also use Tether to keep their cryptocurrency safe during times of high volatility.
For example, if the price of Bitcoin suddenly became too volatile for you to trade, you could swap your bitcoin for Tether to store the value temporarily.
They are very transparent about their reserves which are openly displayed on their website.
At the time of writing, Tether claims to have $4,133,885,779.54 in USD and €40,001,800.00 in euros.
Plus, according to CoinMarketCap, Tether is the 8th largest cryptocurrency with a market capitalisation of $4,059,590,126 USD at the time of writing and a circulating supply of 4,039,892,173 USDT.
Where can Tether be stored?
There are several Tether wallets traders can use. Some of the most used include:
- OmniWallet. This was the original wallet to store Tether.
- MyEtherWallet. A highly popular wallet for Ether based tokens.
Tether did have an official wallet, however, after a major hack, it was taken offline. They have yet to state when it will return.
Tether has been shrouded with controversy since the get-go. Though the coin does work and is one of the most used coins today.
Is their reserve real?
As mentioned above, Tether previously claimed to be 100% backed by their reserve.
Some aren’t sure if Tether has all the money they claim to have. This could be a major problem because, if a lot of people need to withdraw USD, will they be able to do it?
It could be the case that a lot of money orders will have to be put on hold.
Some people have claimed to have seen the reserve accounts and say that the money is there. However, we can never be completely sure.
The fact that some of the reserves are backed in euros has shown that Tether may not always be backed by US dollars which therefore may affect how well it is tied to the US dollar.
More recently, it was revealed by Tether’s lawyers that Tether tokens are only 74% backed by fiat (most likely US dollars and euros) and other reserves.
They also revealed that some of their reserves are made up of Bitcoin as well.
What makes the situation worse is that Tether has never been properly audited. In 2018, Tether dissolved its relationship with an auditor Friedman LLP.
Some claim that they would only do this if they didn’t like what the auditors found.
It should be mentioned though that it may not be completely possible for an auditor to check if all the money is there.
All this has resulted in a lack of trust of Tether. If they can break important promises such as these, what else are they capable of doing?
Tether is not real money
Tether has also said that Tether is not real money and they do not promise to pay you back in USD. They do not have a contractual right to do so.
This is very worrying because they theoretically could just choose not to refund you if they want. If there is a big exodus from Tether, they can simply deny everyone.
They reserve the right to reject you if you violate their terms of service.
Suspicious relationship with Bitfinex
Most of the controversy surrounding Tether relates to Bitfinex. Bitfinex does not own Tether, though they do have a very close relationship.
The two are sister companies owned by parent company iFinex and Bitfinex does own a minority share overlap of Tether. We only know about this because of the paradise papers.
People were aware of the relationship from the beginning, but they weren’t sure how it may affect things.
Not long after this, Tethers were stolen from Bitfinex wallets and had to do an emergency upgrade to freeze the stolen money.
Things got worse in May 2015, when Bitfinex lost 1,500 Bitcoins.
Then in June 2016, the CFTC fines Bitfinex to pay $75,000 for offering illegal off-exchange financed retail commodity transactions and failing to register as a futures commission agent.
Not much later in August 2016, Bitfinex got hacked for almost 120,000 Bitcoins, worth nearly $75 million at the time.
But all this is just the tip of the iceberg. So much more has happened since then and now.
Many shady practices and partnerships with known scammers in an effort to get bank accounts open were recorded.
All this drama has had a big impact on the value of Tether.
More recently, in 2019, it was announced that Bitfinex was under investigation by the State of New York Attorney General.
They want to take a closer look at the interrelated companies within Bitfinex, including iFinex and Tether Holdings Limited.
This is because of the potential fraud that took place of $850 million.
It was supposedly uncovered that Bitfinex used the funds from Tether to cover $850 million in customer losses that came from potential theft or mismanagement of funds from payment processor Crypto Capital.
However, Crypto Capital claims that they could not send the funds because they had been seized by regulators in the US, UK, Poland, and Portugal.
The New York Attorney General doesn’t believe that the money was seized.
Then, in March 2019, iFinex borrowed 900 million from Tether.
Some believe that this was done to buy Bitcoin and increase the price to get back what they need to pay.
No one can be completely sure if this is true though. There are some that theorise that this was always the point of Tether; to be used as a tool to artificially pump the price of Bitcoin.
Some even accuse Tether of printing money when Bitcoin prices were down to manipulate the price.
Not long after, 850 million Tethers were injected into the market.
If Tether faces legal problems, there may be serious repercussions
The issues that Tether is facing are very serious and don’t just affect Tether itself. There are many other individuals, exchanges and other cryptocurrencies involved with Tether.
Roger Ver is involved in Crypto Capital, the payment processor that lost Bitfinex $850 million, and this could create problems for Bitcoin Cash if it is uncovered that he has a deeper involvement.
Another key individual involved in Tether is Justin Sun, who is behind the cryptocurrency Tron. Tron is issuing Tether on the Tron blockchain.
This may mean that Tron could lose an important part of its infrastructure and any funds locked up in Tether.
However, the biggest loser may be Binance which the largest holder of Tether.
Binance is the largest cryptocurrency exchange and if it faces problems, it could shake the whole world of cryptocurrency.
Plus, to make things worse, it is predicted by some sources that up to 80% of all Bitcoin trading is done with Tether.
Is it possible to profit from trading Tether?
Of course, this is a difficult question and no assurances can be given.
It is still very early to say what will happen and if Tether will be useful to trade and nothing can be promised.
Stablecoins do not have the volatility of other cryptocurrencies and so in a sense, it is more like trading forex.
However, it is worth mentioning that in the future it could be very possible that stablecoins may be the new forex if governments move to accept cryptocurrency.
As mentioned above, although Tether tries to stay tied to the US dollar, it has deviated at points, particularly when controversies affected the coin.
So, while traders may not be able to make as big profits from Tether as trading other cryptocurrencies, it may be a very useful cryptocurrency to consider using.
Tether seems very dangerous to invest in due to the drama surrounding them and Bitfinex. It will probably be much wiser to wait for things to settle down before considering getting involved.
That said, there are key things to look out for when trading Tether.
Generally speaking, when the cryptocurrency market is down, Tether usually goes up in price relative to the dollar. This is because many traders move their funds to Tether to keep the value secure.
And prices tend to drop when there is news related to Bitfinex or when there are issues regarding Tether’s solvency.
There are several similar projects to Tether that traders and exchanges can use instead if they are looking for a stablecoin backed by fiat money. Here are just a few:
- Anchor USD - tied to the US dollar
- Stasis Eurs - tied to the euro
- Augmint - tied to the euro
- Gemini dollar - tied to the US dollar
- PAX - tied to the US dollar
- TrueUSD - tied to the US dollar
- USD Coin - tied to the US dollar
If you remember anything from this article, make it these key points.
- Tether is a stablecoin tied to the US dollar. It is useful for traders and exchanges
- If the cryptocurrency market goes down, Tether will likely be okay. In fact, it may even thrive.
- Tether and Bitfinex are owned by iFinex Inc. There are issues over their relationship, specifically regarding the $850 million that disappeared from Bitfinex and the Tether lending a similar amount to Bitfinex.
- It is highly likely that Tether is not completely solvent. If you invest in it, it is very possible that you may not get back what you paid in USD if there is an emergency.
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