Tether Market Jumps by $1.5 Billion to $9 Billion, Nearly Overtaking XRP, Is This Good For Bitcoin and USD?

They said the bear market won’t end until tether is ranked just under ethereum. Well, that’s now pretty much here.

Just a few millions separate tether from overtaking XRP to third position, with its market cap now twice that of BCH. That same BCH which once briefly overtook eth to a market cap of $130 billion.

No one really thought tether would take third position, which it pretty much has done now in great part because the rest has fallen so much.

Bitcoin has recovered, down only 50% from its all time high, but eth is still down 85% and the rest are down a similar percentage or even more, for some 99%.

Many of them will probably never recover, with it possible tether has something to do with this recent bitcoin dominance as Bitfinex are known to be kind of bitcoin maximalists.

There you have it, a cool $9 billion. Much of it is running on ethereum, but going by bitcoin leading the market for the past week/s, it is likely most of it has gone to BTC.

Bitcoin had its halving recently so maybe a rise in interest should have been expected, but tether’s market cap has doubled since March 24th 2020 as can be seen in the featured image.

Up by close to $2 billion by the end of March, and then up again today by some $2 billion with some of that not yet delivered, but it has been printed waiting for it to be issued.

Due to security concerns tether does this ‘printing’ in big chunks because they don’t want to use their private keys very often. So you get these massive jumps and with them the old debate.

Tether arose back in 2015 out of a need to facilitate fully decentralized exchanges which are very easy to do with crypto only, but are impossible to do with fiat, as far as it is known anyway.

So they came up with this idea of creating a usdt token, with that being pretty much like bitcoin in as far as you can transfer it to whoever you want without going to a bank. The difference of course being that it is pegged to usd.

Until the beginning of 2017 this saw very little, if any interest. The then rising eth however seems to have coincided with a rise of tether’s market cap, slowly to begin with and then people start noticing it.

As there is a trusted intermediary here, Bitfinex/Tether, there were of course questions of whether it can be trusted, whether usdt was really backed with dollars to keep its peg.

Then comes news some half a billion dollars was seized from Bitfinex. They were using some small Polish bank. Polish people come out saying that bank is shady. There were a few panics with usdt losing its peg briefly. The intense scrutiny then got to the point American authorities intervened.

Their findings were somewhat surprising because effectively they confirmed this is actually fully backed, except that seized amount which as it turned out was nearly one billion instead of $400 million or so as was first reported.

It was backed with dollars and or bitcoin, with Bitfinex having an Initial Exchange Offering (IEO) to cover this $1 billion.

Now this is a trusted token. There’s plenty that can go wrong with it and facts as they may have been previously might no longer apply, or those facts were incorrectly believed to be so, and we can write a whole book to say a lot more but on balance this kind of seems like maybe it kind of does what it claims to do and legitimately in as far as it takes dollars or bitcoins and turns them into tokens.

Presuming this is legitimate in as far as its peg is backed, it isn’t quite legal technically because Bitfinex isn’t licensed anywhere as far as we know, but legal enforcement has to consider public interest before it takes action. Does this serve or hinder America’s public interest?

There has been a lot of talk about China’s central bank creating basically tether, but for yuan, and the central bank doing so, instead of finex.

There are significant political and strategic potential gains there. Thus plenty of American politicians have argued the fed should be doing the same.

It’s not clear whether they are aware the tokenized dollar was pioneered in 2015. Not by the fed, but it isn’t clear fed or PBOC can do it in a manner the market kind of trusts and in a way that addresses some huge potential political and systematic issues.

This govcoin thing has been discussed for long now and PBOC brings it up now and then to kind of claim they like blockchain tech and support it. In this long discussion there has been one political question which is a very difficult question.

If the central bank issues digital cash, then there is no need for commercial banks. The monetary system thus becomes fully centralized in the fed board, instead of the currently semi-distributed system where commercial banks asses lending and thus print money with considerable complexity to it, but the point is central bank issued digital cash would be a radical change which would need some sort of, maybe even a referendum.

You can easily get around all that by letting the market deal with tokenization. That’s effectively what has been the story for the dollar, with tether being just one. There’s also a similar tokenized dollar from Coinbase and Circle, with that nearing $1 billion, as well as others that do the same as tether with different issuers.

As the first, tether has the widest integration in crypto only exchanges, and therefore currently it seems to account for about 90% of the tokenized dollar market cap.

Its widespread usage means the dollar’s usage is also increasing, albeit to a small extent perhaps but nearly $10 billion with huge velocity is not quite nothing.

As it is pegged to the dollar, that can give America some advantage in as far as they can have a bit more room to devalue and as this was created last decade, that gives USA at least a five year advantage.

There are of course negatives one can try to find, but fundamentally this can be seen as just a modern bank that is performing a certain bank function and therefore is increasing innovation and the dynamism of the dollar, meaning there is no reason to bring down the hammer and really the civil service may well think this is actually quite a good thing, but obviously nothing is perfect and there are risks.

The chief risk is fractional reserve printing that might lead to a bank run which perhaps wouldn’t affect the dollar too much and it isn’t clear it would affect bitcoin as when the peg has previously gone off, everyone has run to BTC, increasing its price.

Only problem is of course if Bitfinex is running on fractional reserves with those books kind of merged in a complex pastiche that ultimately leads to people not being able to get their BTC from the exchange.

That’s always a risk, and a very well known one since MT Gox went under, but generally this is good for bitcoin too because it increases access to it in countries where they don’t have an efficient banking system, but they do have smart phones.

Allowing them thus to trade through this tokenized dollar on crypto exchanges as well as to close any premiums due to regulatory constrains which then in some way translates to basically given them more access to the world economy in general through the crypto economy.

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