Stablecoin Tether (USDT) saw its price take a tumble on Monday, October 15, 2018, temporarily hitting an 18-month low as Bitcoin (BTC) spiked to nearly hit $8,000 on Bitifnex.
The decline happened at a time when the rest of the market, led by Bitcoin (BTC), experienced a rapid surge in price.
Tether (USDT) FUD
Following the sharp drop in the price of USDT, many in the community believed it was the end of Tether, however, the price recovery has definitely refuted that claim, at least for now.
What happened is that an important trader or group of traders dumped their USDT for BTC without the necessary support on the order books (lack of demand/liquidity). This inevitably led to the temporary price decline.
The price decline was further emphasized by a false report that Binance, the leading crypto exchange and largest holder of USDT, was planning to delist Tether (USDT).
The false report coincided with a routine Tether wallet maintenance.
The false report was refuted promptly by the company, the wallet maintenance was real and confirmed.
Lowest level for USDT since April 2017
USDT/USD exchange rates dropped to about $0.86 on Kraken, representing the lowest the ‘price-stable’ cryptocurrency has fallen to since it hit similar levels on April 27, 2017.
The leading stablecoin by market capitalization, which may face competition from recently launched counterparts, dropped by 2 percent in the 24-hour trading window yesterday.
Increased competition in Stablecoin submarket
Recently introduced Gemini Dollar (GUSD) and TrustToken’s TrueUSD (TUSD) incidentally went up as tether plunged, respectively gaining by 1.85 and 4.96 percent in the 24-hour trading period.
Tether’s decline caused panic within the market, and though it has since recovered to trade at about $ $0.99, and is up 1.46 percent, it’s still vulnerable as its hour-to-hour charts show it is likely to go south again.
Tether panic and Bitfinex premium
Tether’s downtrend saw Bitcoin prices surge on the day, climbing as markets reacted to a sell-off in the stablecoin. All top ten cryptocurrencies by market cap recorded upsides except for USDT.
The tanking experienced by USDT precipitated an uptick in BTC, which rose by a premium of over $600 on Bitfinex, hitting a high of $7,788.
The bitcoin price premium on Bitfinex reached a high of over 11 percent, significantly impacting Bitfinex prices. That prompted the sell-off, as people might have felt the need to get out.
At the time, global exchange rates for BTC prices hit an average high of $6,960, the highest in the last five weeks.
However, Bitfinex experienced the highest fluctuation in BTC prices, which rose to about $7,788. At one point, the BTC/USD pair traded at $7,055 on the exchange, compared to an average of just over $6,600 across global markets.
Bitifinex and Tether relationship
Bitfinex has a close relationship with Tether LLC, the developers of the USDT token. And rumors that the crypto exchange is facing “insolvency issues” (Bitfinex refuted this), and a longstanding misgiving about Tether’s actual holdings in U.S dollars, is said to be at the heart of the price decline.
It is likely that these misgivings will continue to shadow tether and Bitfinex, with traders rotating funds out of the stablecoin into bitcoin. This scenario may also be the reason that the other stablecoins gained at a time USDT prices dropped.
Tether has since released a released a statement, via its Chief compliance officer Leonardo Real urging calm and reassuring the crypto community about the company’s holdings in USDT and U.S dollars to the ratio of 1:1.
Real is quoted as having said that tether is listed on most of the major global exchanges and is “the leading provider of tokenized fiat currencies.”
“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.”
He also referred to the June 2018 inspection report by Freeh Sporkin & Sullivan, LLP (FSS), which “confirmed that all Tethers in circulation as of that date were indeed fully backed by USD reserves.”