The Current State of Crypto is a weekly examination of events and market movements in the cryptocurrency economy.
Tether FUD = BTC boom?
In what seems like a counter-intuitive scenario, the uncertainty surrounding Tethers USDT seems to have contributed to a boom in Bitcoin (BTC) buying activity. BTC dominance has risen steadily over the past week since the revelation of fractional backing of Tethers and legal wranglings between iFinex — proprietor of Bitfinex and Tether — and the NYC Attorney General.
One might wonder how such bad news could cause a positive run in BTC prices. Put simply, Tether holders may be moving funds into BTC to escape their USDT positions, thus causing upward pressure on BTC prices. Many are fearful that this may cause a sort of “run on the banks” on Bitfinex, which has now admitted to only holding USD value of approximately 74% of the Tether that is in circulation after funds were frozen.
Theoretically, if all Tether holders decided to liquidate their USDT assets, there would not be sufficient funds to cover withdrawals. While this is not a new situation in the traditional banking world by any stretch, it seems to be causing significant negative pressure and worry on Bitfinex, where Bitcoin is selling at a significant premium when compared to other exchanges. In response to this problem, Bitfinex appears to be planning a token sale in order to make up the shortfall.
While cryptocurrency markets are far more diversified than they were the last time a major exchange collapsed and caused widespread financial devastation (Mt. Gox), Bitfinex still holds significant sway in the ecosystem. Freezing or even limiting withdrawals could cause panic on the larger market.
Another Altcoin season?
Having said that, this situation could also give rise to a renewed “alt season”, with BTC profits carrying over to altcoins; especially those that have been cooling off recently. Assets such as Ravencoin, Enjin, and Theta had seen spectacular runs up until the past few weeks. These falling assets may be due for another rally if traders perceive their prices to be in the buying range again soon, especially when considering their significant drops in relative satoshi value.
Cosmos, a new blockchain offering that boasts decentralized parallel and interoperable networks, akin to platforms like Komodo, has been performing exceedingly well, especially since its trading launch on Binance. The Cosmos Atom currency has gained more than 50% over the past week and has received a great deal of marketing attention since it began trading in March this year.
It should be noted that all of these observations are just that — observations I have made about the market over the past week. This is not professional financial advice and is intended only to act as a quick examination of some of the week’s events for you to enjoy. Please do your own research before doing any investing and never risk more than you can afford to lose.