The Bitcoin market is once again in turmoil, and the reason is an old acquaintance: no, not the US Federal Reserve, but the worries and rumors about Tether’s stablecoin, USDT. Anyone who has been active in the Bitcoin and crypto market for a while knows that rumors about USDT’s lack of backing are part of every bear market. And this bear market seems to mean it particularly “well” as the Tether FUD is now making a reappearance in this cycle.
As NewsBTC reported earlier today, USDT has slightly lost its peg to the US dollar as the Curve 3Pool has lost its balance. The reason for this is that whales are selling USDT and trading it for USDC as well as DAI. However, according to Tether CTO Paolo Arduino, the company is “ready to redeem any amount 1:1 against US dollars”.
Historically, the de-pegging of USDT is not an uncommon occurrence. Samson Mow, CEO of Bitcoin focused company JAN3, writes:
Tether FUD is always the FUD bottom. It’s what they pull out when there’s nothing left. Up soon.
Analyst Miles Deutscher has a similar view. He explained: “Fun Fact: Stablecoin FUD often marks local bottoms,” and shared the following chart.
Bottom Signal For The Bitcoin Price?
As can be seen in the chart, the Tether FUD first surfaced at the end of June 2022. At the time, news emerged that hedge fund Fir Tree Capital Management was shorting Tether after the Terra ecosystem stablecoin Terra USD collapsed. Contrary to speculation, however, Tether was able to process all USDT redemptions, even though the value of USDT had fallen to $0.9520 temporarily.
In mid-November 2022, the cryptocurrency exchange FTX went bankrupt after its competitor Binance backed out of a purchase agreement. The Tether FUD hit a 6-month high and the price of USDT fell to $0.9970. Again, Tether was able to handle all redemptions, while the market found a local bottom.
Most recently, USDC depegging provided the local bottom signal in March this year. The event was caused by the collapse of the counterparty from stablecoin issuer Circle, Silicon Valley Bank (SVB). Crypto whales had also tried to take profits from the situation at the time, while other USDC holders sold out of panic.
Tether emerged as the clear winner from the latter situation and was able to capture large market shares from USDC since then. Most recently, Tether reported huge profits, some of which they are investing in Bitcoin, as NewsBTC reported.
This is another reason why crypto expert Thor Hartvigsen believes that the likelihood of Tether not having enough funds to settle all USDT redemptions is “pretty low”, adding: “According to Tether, the company made $1.48b in profits in Q1 alone which brought the reserve surplus to $2.44b. They’ve further been winding down bank deposits (hold less than $0.5b here) and acquired over $53b in US treasuries throughout 2022.”
Remarkably, the price of USDT has already returned to its default level at press time. After the USDC/ USDT price on Binance climbed temporarily to $1.0042, it was now already back at $1.0019.
As of press time, the Bitcoin price was bucking the Tether FUD and holding slightly above $25,000. However, the drop below the 200-day EMA (blue line) is somewhat critical. Most recently, BTC fell below this indicator which is known as the “bull line” during the USDC de-pegging. Therefore, Bitcoin bulls are advised to stage a similar reaction as in March to prevent a further plunge.