Tether is riding the crypto wave, but are its foundations stable?
Stablecoins like Tether are benefitting from a crypto revival sparked by hopes of a Bitcoin ETF. But little is known about how they're backed or where their reserves are held.
Bitcoin’s comeback was one of the big stories of 2023, but it is not the only cryptocurrency having a moment right now. Tether, the third biggest crypto, is on a tear too.
The incredible 170% Bitcoin rally over the past year is largely due to excitement at the prospect of the SEC approving a spate of Bitcoin ETFs from the likes of Blackrock. On Wednesday its price spiked up to USD48000 after the SEC's X/Twitter account announced approval for Bitcoin ETFs – before falling minutes later when it became clear the post was from a hacker who had compromised the account.
Yet even with the market froth, the Bitcoin price (and market value of all Bitcoins) is about 30% from its peak set in 2021. Meanwhile, the price of Tether, being a stablecoin, is designed to permanently stay at one US dollar. But the market cap of the currency is currently at a record high of $US94 billion.
When traders use cash to buy Tether's USDT, the company behind it mints new tokens and its market cap goes up. When traders "redeem" USDT for the greenbacks they represent, those tokens are burned and the supply contracts. Over USD3 billion in new Tether has been minted since January 1 this year.
