Executives behind the stable currency Tether – which is not only popular, but also somewhat controversial – have announced they just bought more than $200 million worth of bitcoin as a means of backing their digital currency.
Tether and Bitcoin… Together Again
A stable currency is a digital currency that’s not subjected to the same volatility and speculative nature that one often sees with more mainstream cryptos, such as bitcoin and Ethereum. What makes them stable is that they are often supported by various forms of collateral, whether they be gold (or other precious metals) or fiat currencies like USD, the yen, or the yuan. Thus, they tend to retain their dollar pegs and don’t go crashing into oblivion like so many other assets have done in the past. One unit of a stable currency is often worth $1.
There are many kinds of stable coins out there, and Tether is arguably one of the biggest and most well-known. The goal amongst company members is to “diversify” reserves backing the token. The currency has been on a serious bull run since the early portion of the year, accumulating a net profit of close to $1.5 billion last March. It is also said that Tether reserves are near $2.5 billion.
Tether CTO Paolo Ardoino explained in a statement:
The decision to invest in bitcoin, the world’s first and largest cryptocurrency, is underpinned by its strength and potential as an investment asset. Bitcoin has continually proven its resilience and has emerged as a long-term store of value with substantial growth potential. Its limited supply, decentralized nature, and widespread adoption have positioned bitcoin as a favored choice among institutional and retail investors alike.
This would all be fine and dandy except back in 2019, Texas professor John Griffin unveiled a report that explained the full bull run of 2017 and the subsequent bear run in 2018 that occurred for the crypto industry. The report alleges that many Tether holders used their units to purchase BTC, thus tying the stable currency to the asset and keeping it afloat. This is what ultimately helped BTC reach $20K (it’s then all-time high) in the year 2017, though it also contributed greatly to the crash that followed the next year.
Could This Be Problematic?
While the circumstances are somewhat different this time around, the situation is virtually the same in that Tether and bitcoin are being tied together. Last time, Tether was supporting bitcoin. This time, bitcoin is supporting Tether. Could the reversal of the roles inherently cause bitcoin to fall again like it did five years ago? It’s a scary thought for many.
Previously, Tether held many of its reserves in commercial paper, which wasn’t considered safe, though it wound down its holdings to zero last February.
