Update: Careful to quickly assuage any potential loss of the narrative and ‘full faith and credit’ of the ‘stablecoin’, Tether released a statement on USDT drop:

“We would like to reiterate that although markets have shown temporary fluctuations in price, all USDT in circulation are sufficiently backed by U.S. dollars (USD) and that assets have always exceeded liabilities.”

See, nothing to panic about.

*  *  *

The only cryptocurrency not rallying right now is the one pegged to the U.S. dollar.

The week started off green for cryptocurrencies like Bitcoin, Ripple, and Ethereum. Collectively, the three of them rose by about 7% according to a CNBC article out early Monday morning. Bitcoin came close to topping $7,000 again, but digital currencies remain in the midst of a longer-term downtrend that has continued over the last year.

This downtrend among all cryptos was exacerbated by the sharp moves lower in equity markets last week, which prompted billions of dollars of digital currency market cap to be wiped away. But Monday kicked off a new week and cryptos are all trying to bounce or pare their losses from last week (for now, at least).

Interestingly enough, the only crypto not participating in the early week rally is Tether, a digital currency that is pegged to the US dollar. Tether was trading 2.5% lower, down to $0.965, after falling much lower earlier in the morning. 

This chart of the carnage, as it happened on the Kraken exchange, was posted at about 2AM EST on Monday morning by Twitter user @Bitfinexed. It shows Tether printing as low as $0.85:

The firm that runs the digital currency, Tether, Ltd., has recently been questioned about whether or not it holds enough “reserves” to match the amount of tokens in circulation. The company claims that it does.

Charles Hayter, the chief executive of comparison site CryptoCompare, told CNBC: “There is concern about Tether and whether it is truly backed by dollars and rumors about USDT (tether) being delisted from various exchanges.”

These delisting rumors probably aren’t helping quell volatility, either. This comes after one industry publication claims that Bitfinex, a cryptocurrency exchange connected to Tether, has suspended deposits in US Dollars, Euros, Sterling and Yen.

Mati Greenspan, senior market analyst at eToro, told CNBC: “If the perception that tether can hold a stable value is called into question, traders who are holding USDT are most likely to shift their funds into other cryptos in order to hold their value.”

The point of Tether isn’t necessarily to appreciate in value, but rather it is known as a “stablecoin” because it is supposed to, in theory, always trade around one dollar. The digital currency is seen as a way for those worried about the volatility of fiat-to-crypto exchange rates to ensure that they can reliably convert US dollars into digital currencies.

From there, Tether can be used to purchase other digital currencies like Bitcoin and Ethereum.

The question of whether or not Tether’s parent company holds enough in reserves is hardly the first controversy for the coin. We released a report days ago highlighting finance professor John Griffin, who, along with his doctoral student companion, Amin Shams, was one of the two academics that drew market-moving conclusions about bitcoin last year, while the digital currency was trading around $20,000. After sifting through 2 terabytes of trading data, they alleged that bitcoin was being manipulated by someone using Tether to purchase it.

To us, Tether seems like a counterintuitive idea in the sense that it is backed by Fiat, which is the main problem that Bitcoin initially seeked to solve. Forgive us if we are not surprised when the only digital currency that tries to be more like the dollar instead of less like it, winds up being one of the firsts to collapse. 

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