Will Tether Collapse The Crypto Market?
An under-reported issue in the press right now is the possibility that Tether may collapse. You may have seen this token on an exchange as USDT. The Tether token is commonly known as a stablecoin, in that each Tether is suppose to be backed by one USD, though in practice one USDT often fluctuates between $0.95 ~ $1.05. If you trade a moderate amount, the appeal of a stablecoin is obvious: you can sell your BTC for USDT, then move the USDT to another exchange or a safe wallet as opposed to risking the money on the health of the exchange or dealing with the traditional banking infrastructure. But as obvious as the need, you can probably already see the flaw here: you have to trust Tether to not release more USDT than they have dollars in reserve. And it gets worse: The crypto-sphere only recently learned that the firm hired to audit Tether's USD reserves is no longer working with them, and their last audit (dated 9/15/17) stated their reserves held just over $440m in USD. Current USDT in circulation? >$2.2b. If you correlate increases of the USDT supply with spikes in the BTC price, you may start to get "the fear". If it turns out Tether is indeed insolvent, and the rumors about their relationship with one of the largest exchanges, Bitfinex, turn out to be true, a Tether collapse might bring down a few exchanges, an event which may have a harsh short-term effect on the entire market.
Some additional reading on the topic:
Tether was subpoenaed by CFTC in December, regarding the issue
A pretty solid list of Tether criticisms from a Reddit user, dated 9/2/17
This one might shake you: "Meet ‘Spoofy’. How a single entity dominates the price of Bitcoin"
A great video on how a decentralized, automated stablecoin might work with smart contracts:
