As Tether faces credibility issues in the cryptocurrency market, holders are taking a 5 percent haircut as they exchange the stable coin for other cryptocurrencies, including Bitcoin, on the Bitfinex exchange. The increased fear that each token issued may not be backed by one U.S. Dollar has resulted in a premium of up to $300 on the price of Bitcoin traded on Bitfinex.
Tether Holders Take Five Percent Haircut As They Exchange for Bitcoin
Tether (USDT) has seen its market capitalization plunge from the $2.8 billion area to just above $2 billion in a matter of ten days as holders moved approximately $800 million elsewhere. Bitcoin is the champion most Tether holders are looking for as they dump their tokens.
Bitcoin is being traded at $6,732 on Bitfinex, nearly $300 more than the $6,443 priced on the Coinbase exchange and other operators. Richard Johnson, an analyst at Greenwich Associates, explained the phenomenon.
“So if most Bitfinex traders are holding Tether instead of USD, then this represents the premium they need to pay. Another way of looking at it, is that holders of Tether have taken a 5 percent haircut on their so-called stable coin.”
The cryptocurrency market questioned whether Bitfinex has gone insolvent when it announced a temporary pause on fiat deposits for certain customers amid processing complications. The exchange denied it. Alex Michaelis, co-founder of researcher CoinSchedule, believes there is no reason to think otherwise, he told Bloomberg.
“I don’t think Bitfinex is going under, we met with them last week and that is not the impression we got. What I think happened is that a lot of people think Tether is going bust, so they are exchanging their Tether for Bitcoin and pushing the price up there.”
Tether has found many critics throughout the years as many suspected Bitfinex was not rigorously backing the token with USD. The controversy intensified when the exchange decided to end their relationship with Friedman LLP, the company responsible for auditing Tether, and was subpoenaed by the U.S. Commodity Futures Trading Commission.
Lex Sokolin, a partner at Autonomous Research LLP, argued that its collapse would crunch pricing and liquidity. On the other hand, it may “clean up the activity to be more reflective of real demand.”
Tether still dominates the stable coin daily trading volume and market cap. Its economy is worth just over $2 billion, with the second largest stable coin, TrueUSD, having a market cap of $160 million. Other tokens include Paxos Standard Token, Dai, USD//Coin, and bitCNY.
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