Tether Could Fall

Could Tether actually Collapse?

Hey Guys,

I wanted to just write a short note on Tether.

A lot of Bitcoin’s ownership in price is involved and implicated in the stablecoin Tether. I believe it’s actually at risk in the current macro environment.

Tether said its holdings of U.S. Treasury bills rose 13% to $39.2 billion, while commercial paper fell 17% to $20.1 billion.

Think about, U.S. Treasury Secretary Janet Yellen has urged Congress to approve federal regulation of stablecoins. There’s no reason with inflation and a crypto winter how Tether could not collapse. The fall of Terra was bizarre and shows how dangerous algorithmic stablecoins can be.

Tether, the digital currency, briefly fell below its intended $1 peg earlier in May. This could be a sign of things to come. Tether has seen its circulating supply plunge from a record $84 billion on May 11 to around $73 billion as of Monday. This is not a good sign, it could lead to a domino chain of events where Tether collapses, even as regulators are warning about Stablecoins.

The Crypto Reckoning of 2023 is Coming

This is a major red flag in the confidence around Stablecoins.

The panic over UST has drawn attention to other stablecoins — tether, in particular.

We know that another crypto winter and a global recession are both highly likely, given history and the conditions we have. History is usually the best predictor of future behavior. Bitcoin is not immune to volatility and seems tethered to the massive liquidity trends related for instance, to the decline of the NASDAQ 100 and speculative EV stocks around Tesla.

If we assume that Terra wasn’t a rug pull, it was a poorly designed ‘castle of cards’, could Tether suffer the same fate? , Tether has given back $10 billion to investors looking to divest and redeem their tokens for cash, and it could just be the beginning of a crypto reckoning.

Some believe the pace of withdrawals in May means ‘stablecoin’ company effectively dealing with slow-motion bank run. Tether in this sense functions a bit like the largest crypto bank. According to public blockchain records, $1bn of tether was redeemed – with the cryptocurrency handed back to the company and destroyed as part of the withdrawal process – just after midnight on Saturday. This feels a bit sketchy.

Regulators have raised concerns about stablecoins after the collapse of UST, which at one point was the world’s third-biggest stablecoin. So what’s the worry for Tether?

Some have questioned whether the accounts are as reassuring for depositors as they appear. If the company’s investments in cryptocurrency enterprises fell in value during the market crash, then it may have struggled to match customer deposits. The tokenomics around Stablecoins hasn’t been tested in a recessionary or stagflationary environment.

Like all stablecoins, the tether currency is supposed to always be worth a fixed amount – in this case, one US dollar. It achieves that, the company says, by maintaining a large reserve of stable assets: while retail investors can buy or sell tether on cryptocurrency exchanges, institutional investors can also simply pay money directly to Tether to receive newly minted tokens, and can return the tokens to the company in exchange for cash.

In an environment where Bitcoin swoon dived, what would really happen to Tether? I guess we will find out.

Tether’s latest disclosure is notable as it’s also the first time the company has revealed it is buying government debt from countries outside the U.S. in addition to Treasury bills.

From a high of just over $83 billion in market capitalization on May 11, Tether, the largest stablecoin by market capitalization, dropped to around $73 billion in market cap as of Monday, according to CoinMarketCap.

• USDT is also the most controversial stablecoin, with serious questions raised about its governance and reserves, and especially about its ability to damage the financial system, particularly if it loses its $1 peg.

• Buying government debt from countries outside of the U.S.? That’s not a good sign.

• In the case of a stablecoin, its value could — and in several smaller cases has — fallen to zero. After Terra, Terra is on the hot seat. There’s no guarantee that it won’t fall to zero.

• Tether, the world’s largest stablecoin, has seen its circulating supply plunge and should continue to see this trend continue.

Crypto is a bit like a house of cards because it’s all tethered to Bitcoin (price) via Tether. But more damaging, many cryptocurrency investors, particularly large ones, park huge sums of money in Tether. You can see how a collapse of Tether would bring on a crypto winter of pretty large proportions.

Tether has a history of lying about the nature of its business when it was opening bank accounts around the world. They will be charged for some kind of banking fraud and cat-and-mouse behaviors that are more or less illegal, in my opinion.

Tether claims its dollar-denominated tokens are backed by an equal value of assets held by the company. But the company has never presented a full formal audit of its balance sheet, despite repeatedly promising to do so.

Sadly these are all more red flags for the viability of Web3 and these NFT castles in the clouds.

What do you think? Could Tether Collapse?

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