Tether Falls, What Is Next?

The sky is falling in Crypto today because its biggest stable coin has lost its peg to the dollar. Tether USDT, long claimed to be backed up by millions in fiat reserves, is no longer trading at a dollar, currently sitting at $0.966.

A mere three and a half cents off of its normal price might not seem like a big deal to outsiders, but it is. Tether is supposed to be pegged to one USD. Without that stability, it loses its main selling point and could quickly lose the confidence of investors.

While every situation is unique, losing investor confidence has sounded the death knell for previous attempts at a stable coin.

NuBits is hardly talked about these days but it was the crypto world’s first “successful” stable coin. From September 2014 until June 2016 NuBits stayed around one US dollar, give or take a cent. On June 7th it fell to $0.96, which wasn’t that far from its normal variance but was enough to erode investor confidence. June 8th it fell to $0.90 and then by June 9th it had entered free fall, hitting $0.63. by the 18th, it had hit lows of around $0.21.

Somehow, NuBits managed to recover. In September of 2016 it clawed its way back to around the $1 mark. But it was a short lived victory. In late 2017 as rumors of a Bitcoin Christmas crash circulated, investors started jumping back into Stablecoins, including NuBits. Its marketcap jump dramatically and it started seeing short lived spikes in price, up to $1.43. While most coins would welcome an increase in price, for a stable coin it is almost as concerning as a downtick. It is not clear if that is what caused the lack of confidence but in March of this year, interest In NuBits dropped and so did investor confidence. The price quickly followed. Whatever the cause, people started leaving NuBits and it’s blockchain voodoo algorithm was unable to keep up. Its price tanked to around $0.25 and has yet to recover.

Now you might be thinking that NuBits recovered from breaking its peg once, perhaps Tether can as well. And you wouldn’t be wrong in thinking that but there is one problem: This is Tether’s second break. In April 2017, Tether USD fell to $0.92 before eventually recovering.

There are differences, of course. Tether’s first price drop was short lived, lasting from late April to late May. By contrast, the first NuBits break lasted from late May to late September 2016, four months. The rest of the industry is also tied up in Tether. While the collapse of NuBits was felt, most obviously among the traders who used it as a hedge. But Tether is the creation of BitFinex’s top executives and they have  a lot of their wealth tied into it. Biannce and Kraken also both have hundreds of millions of dollars tied up in Tether. If Tether were to collapse, it could bring down three of the industry’s largest exchanges. Even if these exchanges manage to survive, any drop in Tether’s price it would undoubtedly reverberate throughout the industry.

That works both as an advantage and a disadvantage for Tether. It will have some powerful forces working to prop it up. But its potential impact is likely to make investors more nervous and as we saw in the case of NuBits, a lack of investor confidence can bring the whole thing down.

A key point will be when Tether Inc. supposed reserves are tested. Tether has long claimed that each unit is backed up by a real dollar. But the company has never been officially audited and Bitfinex allegedly had issues with its banking partner Nobel Bank before switching to HSBC. It is not known if the reserves were held at Nobel Bank or not. They shouldn’t be because Tether and BitFinex are technically different companies (despite sharing key leadership) but one can never be sure of anything in the crypto world. If Tether/BitFinex can’t reach its reserves or if the reserves were exaggerated, that could be a huge problem. There is undoubtedly going to be a bank run on Tether. How long it lasts and how significant it is largely depends on how long the price remains below a dollar.  If it becomes too much for Tether to handle and it collapses, its consequences are going to be felt in the industry for years. BitFinex is already showing shades of Mt. Gox with customer complaints on withdraws times and complaint tickets not being answered (though our own experiences have been fine). A Tether collapse would certainly exacerbate their problem to the point where recovery is hard to imagine.

In a related note, competitor TrueUSD has also broken its peg, in the other direction for about the same amount. It is currently trading at around $1.05. While that may seem like good news, it showcases that their control price levers may be unable to keep up with the increase in demand due to Tether’s fall. If that is the case it may indicate they wouldn’t be able to handle a similar downward trend in demand. The same can be said for USD Coin, the Circle created and Goldman Sachs funded stable coin is currently trading at $1.10. Circle has told me in an email that they have seen a 2,000% increase in use this weekend alone.

We will have more as it develops.

Fidelity Will Open Cryptocurrency Trading to Its 27 Million Customers

On the heels of a massive 10% price jump in Bitcoin (BTC) 00 and after a rocky week for the stock market, Fidelity has announced plans to store and trade digital currencies for their institutional clients.


Currently, Fidelity manages $7.2 trillion dollars in total assets, and services more than 27 million customers.

Fidelity is leading the United States in 401(k) retirement savings plans, and is one of the largest 403(b) retirement plan providers for not-for-profit institutions.

Just last week, we saw Nouriel Roubini testify against Bitcoin and cryptocurrencies, calling them a “big scam” and a “bubble.” It’s interesting that an economics professor will testify against Bitcoin, while one of the largest and most conservative investing companies in the world will be offering an institutional platform for their clients.

This makes you question the motives and intentions of an economics professor, who has been tweeting against Bitcoin for nearly 5 years. Anyone who had listened back then would have missed out on a 30,000% opportunity cost.

This is also following the news that Goldman Sachs and others large banking institutions are also moving into the space.

Fidelity’s entrance into crypto is just another notch in the belt for Bitcoin and the cryptocurrency market’s legitimacy.

Fidelity

Starting out, Fidelity will only be open to professional traders and hedge funds. It will first deal with Bitcoin and Ether, the #1 and #2 market cap coins in the space. However, it plans on adding more cryptocurrency assets down the road.

This isn’t the first experiment that Fidelity has lead into cryptocurrencies. They’ve had a lot of experience with mining Bitcoin and implementing digital ledger technology into their trading platform as their CEO had been pushing for it since she joined Fidelity.

According to  Tom Jessop, the founding head of Fidelity Digital Assets, “Family offices, hedge funds and other sophisticated investors are starting to think seriously about this space.”

We started exploring blockchain and digital assets several years ago, and those efforts have been successful in helping us understand and advance our thinking around
cryptocurrencies […] The creation of Fidelity Digital Assets is the first step in a long-term vision to create a full-service enterprise-grade platform for digital assets.

Cybersecurity will be one of the company’s main focuses in order to prevent hacks and to create a vaulted “cold storage” custody solution for their clients.

Fidelity also spoke about exactly what else they will be focusing on in their press release.

With any new asset class and marketplace, maturity comes when the infrastructure is built. Having one of the most well-known investing companies like Fidelity joining the cryptospace is another sign that you should not sleep on Bitcoin as a potential long-term investment.

In a quote with CNBC, Jessop said, “No one said when some of these early stage Internet companies in 2000 were going out of business ‘gee the Internet is toast’.” He then added, “We don’t focus too much on the price. It’s a foundational technology — people are trying to get exposure to the trend, and expect volatility in the assets themselves.”

Will Bitcoin be the risk off hedge for institutional clients as volatility across the world remains high with trade tensions, currency problems, and rising debt?  Only time will tell.

Disclaimer:  The views expressed in this article are the personal opinion of the author and do not reflect the views of Bitcoinist. The information in the article should not be taken as financial advice.]

To get future updates to when Jacob Canfield (I Love Crypto) writes new articles or to get in contact directly with him, you can follow him on Twitter (@ILoveCrypt0)  Youtube, and TradingView.

What are your thoughts on Fidelity’s embrace of crypto? Don’t hesitate to let us know in the comments below!


Images courtesy of Bitcoinist archives, Fidelity.

Something is Cooking: Flipkart Mentions Bitcoin While Talking About its PlusCoins on the Home Page

Flipkart building logo

The Indian startup ecosystem has had many great nuggets till now. Flipkart, Ola, Oyo, Zomato and many other tech startups were born during the startup boom of India. Some of these names have also become recognized brands in many different countries now. But when it comes to leading the way, Flipkart is clearly ahead of everyone else in all aspects. Whether it’s innovation, technology, user base or valuation – this one company is the clear leader. So when it mentioned Bitcoin on its front page without any hesitation, everyone was taken by surprise! Have a look at the image shown below:

Bitcoin reference

As you can see, the mention came while describing the achievements of its recent sales. And it was while talking about the newly launched Flipkart Plus membership of the company. It’s worth noting that instead of saying “63 million PlusCoins earned” the company intentionally said that the number of PlusCoins earned is 3x of all Bitcoins that can be mined (i.e. 3x of 21 million).

So the question that comes to mind after this development is… what does this mean? Is Flipkart really thinking about doing some crypto-related thing in near future (maybe converting its PlusCoins to exchange-traded utility tokens)? Is it working on any Bitcoin related functionality/product (i.e. maybe its own wallet – when it could launch its own consumer products under Billion and MarQ brands, what’s wrong with a wallet)? Or was it just a random mention (which seems highly unlikely)?

There’re more questions than answers right now, and we’ll have to wait some more time before we reach any conclusions. It’s possible that the company would’ve launched its PlusCoins as utility tokens if government’s stance on crypto wouldn’t have been so harsh. But now when this has not happened, we’ll have to wait to figure out why Flipkart mentioned Bitcoin while talking about its PlusCoins.

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Technology and business were my core interests, so it wasn’t surprising that I got interested in cryptocurrencies, which operate at the intersection of both these things. Now I live my passion by trading cryptocurrencies and covering Cryptocurrency news. You can connect with me on Facebook to learn more about me. 🙂