Cryptocurrency markets rallied on Monday morning, with bitcoin leading the charge.
Bitcoin climbed as high as US$7,000 on some exchanges, marking largest single-day rally in months. As expected, many other cryptocurrencies followed suit, with ether and XRP both posting double digit gains before falling back slightly.
The big surprise, however, was Tether which came unhinged from the USD, falling nearly 6 percent from its peg as negative sentiment took hold of the “stablecoin.”
Tether falls to record low as negative sentiment takes hold
Tether has been a point of controversy in the crypto-sphere for some time now, with many suggesting that the USD-pegged cryptocurrency may not, in fact, be backed by an equal amount of USD.
Bitfinex, which has been accused of insolvency by many, denied to accusations, stating “Bitfinex is not insolvent, and a constant stream of Medium articles claiming otherwise is not going to change this”, adding “As one of only a very few exchanges operating since 2013, with a small team and low operating costs, we do not entirely understand the arguments that purport to show us to be insolvent without providing any explanation about why. The wallets below represent a small fraction of Bitfinex cryptocurrency holdings and do not take into account fiat holdings of any kind.”
The worries grew, however, as the crypto exchange Bitfinex, lost its banking partnership with Noble Bank, a Puerto Rico-based financial services provider.
Following the split between Bitfinex and Noble Bank, the exchange created a shell account with Hong Kong-based HSBC according to the Block’s Mike Dudas. This led to the exchange halting all fiat deposits temporarily.
Hours before the Tether crash, Bitfinex released an update on the deposit issues:
— Bitfinex (@bitfinex) October 15, 2018
At the time of writing, bitcoin is trading near $6,900 on Bitfinex while other exchange mark its price at around $6,400. The premium suggests that Tether holders may be rushing for the exit.
Reactions of crypto influencers
In response to the events, several influencers from the crypto space have decided to make comments about the entire Tether-Bitfinex saga. Dogecoin creator Jackson Palmer has taken time to observe how USDT momentarily went below the 90 cent threshold on exchanges like Bitfinex and Kraken. He also implied in a rather ironic but not-so-obvious way that there is nothing organic about the sudden pump of Bitcoin and all of this looks like market manipulation.
Furthermore, professional trader and educator Tone Vays has gone live on YouTube to spend over 83 minutes talking about the Tether situation. During his time, he commented that the only reliable and honest exchanges are the ones like Bitstamp which aren’t linked to Tether. In terms of price prediction, he said that the potential downfall of USDT can bring a new short-term bullish trend, and that by the end of the day Bitcoin can go to $12000 or plummet below $6000. However, Mr. Vays has maintained his bearish views on the market and stated that he’s keeping his short position until March.
In Today's #Bitcoin $BTCUSD $USDT #Tether Video: https://t.co/8CluDMZ17r:
1. YES, I am still in the Short Trade
2. NO, I did NOT get #REKT unless a paper loss of 0.21 btc is REKT to YOU
3. YES, I entered pre-Maturely based on TA
4. NO, I do not regret it
5. MAYBE, Double Down.
— Tone Vays – TheFinancialSummit.com (@ToneVays) October 15, 2018
Concerns regarding the future of Bitfinex, USDT, and Bitcoin ETFs
Another point that Tone Vays has made in his lengthy video is that this situation is bound to face greater and lesser pleasant consequences from governmental authorities. The comparison presented is that of the relationship between Okcoin and the Chinese government in 2017, when services have been halted for local traders.
If USDT gets wrecked and the money gets invested in coins, we will be seeing a quick pump. But on the mid to long term, the US authorities will have enough of a reason to investigate and shut down Bitfinex for manipulating the market. On the very long term, it’s good to get rid of a greedy actor, but the situation with regulators will be tense and we won’t be seeing the SEC approve any ETFs.
On November 5th 2018, the US Security and Exchange Commission is expected to present the results of nine ETF applications for Bitcoin. Many traders hope that the regulators have a better understanding of the phenomena and will appreciate the relative stability of the price in the last couple of months. However, the potential manipulation of that Bitfinex does through USDT can easily bring back the “Wild West” narrative and negatively influence the result of these ETFs.
The next few days will be crucial in order to determine the status of Tether and the credibility of Bitfinex as a cryptocurrency exchange, and it’s going to be interesting to observe how the events turn out. What we know for certain up to this point is that the price growth of BTC isn’t organic, wasn’t part of the expected dynamics (as pointed out by Tone Vays in his technical analysis), and Tether is still an instrument to manipulate the price on an extended number of exchanges which make use of it.