Why Tether may wreck the crypto market

Tethers Strengths.

Investment is a risk. It is also a gamble that people make and hope to profit from. There are two different types of cryptocurrency in the market, as you can see below:

  • The normal cryptocurrency
  • Stablecoin

The main difference between the two is that stablecoins are dollar-backed. Their value is meant to remain fixed at $1, no matter the conditions in the market. The other type of cryptocurrencies face volatility, and their value fluctuates. This is why people invest in them, hoping their value will increase over time. During the current crypto crash, stablecoins have become the most important cryptocurrencies. People and investors are choosing to use stablecoins. Finance experts and others have stated that Tether, the most common stablecoin in the market, is the lifeblood of the crypto ecosystem. They can deposit their money into the cryptocurrency and hold it as they wait for the next huge opportunity. 

When this happens, the traders can conduct safe and predictable transactions. What this means is that Tether has been able to act as a loosely regulated crypto bank. This is where people save crypto tokens waiting for use or make transactions for various reasons. This has increased pressure from various groups, including cryptocurrency regulators, investors, economists, and sceptics. The increased use of Tethers has caused some concerns among various groups, and it has caused problems. The main problem started with the crash of Terra USD and Luna from the same organisation. This crash caused many problems as the coin was meant to be stable but lost its value in just a few days. 

The organisation paid $18.5 million as the penalty for categorising the coin as stable while they had not taken the required measures to make it stable in the crypto market. This made people conscious of other stablecoins, including Tether, fearing it could crash as Terra Luna did. The second factor alerting people on the future Tether is that Celsius, a crypto bank, halted withdrawals. This is called a bank run. This is when depositors want to withdraw their investment in a particular bank, and the bank cannot offer the amount being withdrawn. A similar thing happened to Tether that made people think twice and develop a fear of a Tether crash. 

A few weeks ago, investors wanted to withdraw their investment before incurring more losses. During that event, 1/8 of the entire Tether holding was withdrawn. A total of $10 billion was withdrawn. As a result, the value of Tether dropped from its $1 price for a short time. To sum up, considering a similar situation led to the death of Terra Luna, investors can’t think of the same happening to Tether.

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