Tether Closes the Price Gap after $300 Mil in USDT Removed from Circulation

Stablecoin Tether (USDT), which is meant to be pegged on a 1:1 ratio to the U.S. dollar, has seen its price fall dramatically in recent days, calling into question its ability to offer investors stability from the volatility in the cryptocurrency market. The separation of the Tether price from the U.S. dollar coincided with the removal of $300 million worth of USDT supply from circulation.

The transactions, which actually occurred leading up to the price declines, were initiated by crypto exchange Bitfinex, which according to CCN made two separate batch payments worth a combined $300 million in USDT to Tether’s treasury address. One of the transactions, which was for $100 million in USDT, unfolded on Oct. 9, with the balance of the amount being transferred on Oct. 14. The sharp declines in the USDT price unfolded on Monday.


Source: CoinMarketCap

Tether and Bitfinex Connection

Tether and Bitfinex are intertwined, sharing the same CEO, J.L. van der Velde. Bitfinex has been mired in controversy surrounding its banking partners, an uncertainty that was exacerbated by the exchange temporarily suspending deposits. Bitfinex’s solvency was also called into question. But the exchange attempted to alleviate the concerns in a blog post in which it assured users that withdrawals were working, after which time the USDT price showed signs of stabilizing while the Bitcoin price retreated somewhat. Tether has a circulating supply of 2.25 billion coins compared to a total supply of more than 3 billion, according to CoinMarketCap.

After falling as low as $0.85 on Kraken yesterday, the Tether price has since recovered to $0.98 with a market cap of $2.2 billion. Crypto analyst Alex Kruger pointed out the price dynamic last night –

Tether Chief Compliance Officer Leonardo Real told CNBC:

“We would like to reiterate that although markets have shown temporary fluctuations in price, all USDT in circulation are sufficiently backed by U.S. dollars (USD) and that assets have always exceeded liabilities.”

But the damage to perception has been done. As Tether’s woes persist, it’s at risk of losing its grip on the market as rival stablecoins are capitalizing on the opportunity for share. Goldman Sachs-backed Circle said in a blog post that its recently launched stablecoin USD Coin (USDC) experienced a 2,000% jump in trading volume over the last week, while the market cap of the cryptocurrency has risen by 85% to more than $25 million. Circle has been pushing USD Coin’s most attractive feature, transparency, while Tether remains mired in uncertainty. Meanwhile, crypto exchanges including the likes of Huobi, OKEx and KuCoin have been listing stablecoins in droves.

Featured image courtesy of Shutterstock.

Gerelyn has been covering ICOs and the cryptocurrency market since mid-2017. She's also reported on fintech more broadly in addition to asset management, having previously specialized in institutional investing. She owns some BTC and ETH.