As chatter begins to grow around the increasing cost of buying crypto with Tether, the bank most associated with it in recent times is being put up for sale.
Observers of the cryptocurrency markets have long had their eyes on Tether (USDT), the second most traded cryptocurrency after Bitcoin in terms of volume. Created to solve the issue of the limited ability of many unregulated crypto exchanges to provide US dollar-based pairs, it offered their users the chance to trade in a currency they intrinsically understood the value of, while simultaneously avoiding the lengthy timescales and problematic logistics surrounding conversion to fiat that arose when they wanted to cash-out temporarily to a relatively safe haven.
Over recent days, the conversation around Tether has largely been related to the so-called ‘Premium’ that its users sometimes have to suffer when using it to buy Bitcoin and other crypto. Due to the fact that Tether has always been ‘a dollar that’s not really a dollar’ in the minds on many investors – a useful tool, but simply not the same as having money in the bank (for reasons we’ll outline below) – there has long been the potential for markets to impose an extra cost to buying Bitcoin with USDT compared with actual USD.
Currently, according to a site that tracks the differential, that Premium that USDT users are paying compared to the USD price for a Bitcoin currently stands at $39. According to data shown to CNR by our colleagues at CryptoGlobe, based on its own research, the price of USD- and USDT-bought BTC were in-line with each other as recently as mid-September.
Tell A Tale of Tether…
The situation wasn’t helped by a Bloomberg report yesterday, noting that the bank Tether had most-recently been associated with, Noble Bank, was looking for a buyer at what appeared to be a heavily discounted price. That bank also handled the accounts of the exchange BitFinex, a company Tether is heavily linked with – and a pair whose fortunes appear to be intertwined.
Noble had picked up the BitFinex and Tether banking business after they were told by Wells Fargo that it was no longer willing handle transfers of money to and from its bank accounts back in April 2017. That effectively cut the pair off from US Dollar deposits, and began a secretive search by the two for a place to deposit assets that would allow them Euro and Dollar on/off ramps. That search apparently took in concerns in Panama and Poland, before they set down their bags in a third ‘P’ – Puerto Rico, and the coffers of Noble.
As the Wells Fargo snub – and the pair’s search for new banking services – turned the focus of investors and authorities towards the stability of Tether and its role in the prices charged for Bitcoin, something else came to light. The so-called ‘Panama Papers’ leak exposed that the two companies shared high-level executives – Giancarlo Devasini (Director of both) and Phil Potter (BitFinex’s chief of strategy).
Tether has since been under scrutiny by the FBI throughout 2018, and was subpoenaed by the US CFTC late last year amid concerns that the financial reserves it says it holds to back its Stablecoin offering don’t actually exist. Put simply: if they do not, it means that one Tether is not intrinsically worth one dollar. That, in turn, would mean that the price of cryptocurrencies is being inflated by an asset that simply isn’t worth what investors are being told it is – a charge that has consistently been levelled at Tether by some critics since its inception.
Research by BitMex says that by the time the world was catching-on to the fact that BitFinex and Tether were using Noble Bank to get its customers in and out of fiat, it was already beginning to move its money elsewhere. It now seems to have totally divested itself of Noble’s services and is already operating elsewhere (reports say that Noble, in order to keep its license, would have been obliged to hand over details of US based accounts linked to any investigation and help those undertaking it wherever they can). This in turn appears to be the reason that Noble is now for sale.
What Goes Around Comes Back Around…
However, concerns appear to be growing about the precarious, itinerant nature of the duo – and the role of Tether in keeping the Bitcoin price above $6,000 this year is thus under the spotlight again.
When Tether attempted to allay fears regarding its reserves in September 2017, it was more than a little shady in its attempts to show it had the funds to back up the $442m of Tether it had then issued. Even then there were many sceptics, of both the claim and its ‘proof’.
When, in June of this year, it released its now-infamous “audit-but-not-really-an-audit”, the amount it claimed to hold in USD had ballooned to over $2.5bn. As of today, a look at the Tether Rich List will show you that Binance alone is holds over $900m in USDT in its wallets. That’s a sobering indication of the prodigious amount of USDT that’s made its way to markets during the last year, whilst the company behind it remains officially unaudited and under constant suspicion of market manipulation by both sectors of the crypto community and, apparently, US law enforcement and regulators.
We’ve Seen Worse…
Of course, the Premium is effectively a reflection of the value of USDT going down in the eyes of the market – effectively the belief of those using it, or selling Bitcoin for it, that the Tethered coin is not really worth what it says it is. That doubt has obviously been growing in recent days. However, while the premium current premium stands at $39, by far the highest Premium for buying Bitcoin with USDT came in the wake of the Wells Fargo cut-off. Then, when with the price of BTC was $1,200, at times it could have cost you 8% ($96) more to buy one with USDT. That current $39 difference represent around 0.6% at current market prices.
So, while the fact that it wasn’t there a few weeks ago and now it is, makes the Premium worthy of note – and reiterating the questionable history of its creation is worth repeating as more potentially stable stablecoins emerge in its wake – we need to bare in mind that Tether has come back from such problems before. It may well do again, but it’s not ceased to be a talking point in the last year, and for some of the vociferous critics of the coin on social media, probably won’t stop being the target of their ire until they can shout “WE TOLD YOU SO” from their virtual rooftops.
Watch carefully, we’d suggest.