Tether is the world’s largest stable currency, which is said to be 100% guaranteed by US dollars.
Bitfinex is their sponsor – one of the world’s largest crypto trading platforms.
And right now, something is happening on their platform where most of their users are withdrawing their money.
It all started just a few weeks ago …
In fact, we have already answered this question a piece back.
In February 2018, we warned that Tether had evidence that it was 100% guaranteed in US dollars. – No audit, no transparency.
A few months later, we brought out the suspicious activities of Bitfinex.
And next, we warned about how this could create distortions in the cryptocurrency market .
For a while, people seemed to pay close attention to it.
But now that this is already happening …
It turns out that Bitfinex is operating at a loss of $ 850 million by borrowing investors’ money backed by Tether. That’s what the New York Attorney General says. And indirectly, that’s what the people at Bitfiniex have acknowledged.
In their defense, they have pointed out that they have money elsewhere. Nevertheless, we believe that the funds allocated to secure Tether should be sacrosancent. These should be separated; never mixed with other accounts.
The unfortunate reality is that most of this crisis would have been avoided if it had been more clearly communicated. It is possible that market participants would have accepted it. They just don’t like surprises. So when people find out, they panic from their natural instincts.
The next big question …
Some crypto investors fear that Bitfinex’s problems could lead to the same situation as Mt. Gox trading platform in 2014. Where many people lost their Bitcoins. As a result, the entire market sank for a year.
But we do not agree with that. In 2014, Mt. Gox dominated the airspace with more than 70% of the world’s cryptocurrency trading volume. Today, Bitfinex owns only 5%. So even if Bitfinex doesn’t get rid of its problems, its impact should be relatively small.
The problem is that Tether is pretty big. With about 20% of the world’s cryptocurrency trading volume, Bitcoin is in the top 1.
So, this is where we think there is a big risk.
What happens when Tether collapses? Early to say. But recent history shows the silver lining:
Last year, in mid-October, we saw Tether’s fear. As of today, investors suspected dubious behavior in securing Tether and the dollar. And as today, they panicked, abandoning the Tether.
What saved the day: Instead of exchanging Tether for US dollars, investors exchanged Tether for Bitcoin.
In other words, the value of Tether fell, the value of Bitcoin rose. And when investors overcame the shock, markets returned to normal.
And in the last few days, we’ve seen a similar pattern. Again, we have a Bitcoin rally in Bitfinex and Tether.
This is good news. The money stays in the crypts, and Bitcoin investors reap the benefits. So, let’s hope it continues.
Ironically, stable money like Tether simply creates the same counterparty risks that contributed to the debt crisis that cryptocurrencies had to deal with in their original form. These are not the crypto’s future. They may just disappear after all.
Before and above all, feel stable about what they really are: A loan from a bank-like institution that acts like your asset manager may not be safe.
Second, avoid stable money. If you are looking for stability, why keep an asset that may or may not be secured with fiat money? Instead, you could buy this fiat money directly. Hold the US dollar instead of Tether.
Third, do not deposit your money or crypts on the trading platform. Trading platforms involve significant counterparty risks. Like banks, you have to trust that they are safe. Like a bank, they can play games with your money, for example, by borrowing them from third parties or even for high-stakes speculation. However, unlike a regulated bank, they lack transparency.
Fourth, store most of your digital assets in a hardware wallet that you own and control.
Fifth, make sure you copy your wallet private keys to a secure physical medium. For example, on paper, specially designed metal sheet …
Most importantly, stay alert. Cryptography offers huge opportunities, but only if you can avoid the risk.
One of our important missions is to warn you about them early.
Translation: Lucreds Plus OÜ