Love, hate or fear it, there’s no avoiding tether (USDT). Its shadow looms over the cryptoconomy, supplying sanctuary in times of volatility, providing fiat capital inflow and acting as a lightning rod for crypto critics who believe it’s propping up the price of bitcoin. Over the past year, a flurry of new stablecoins have entered the market, each vying to topple tether and provide a more transparent and fully audited alternative. So far, they have scarcely made a dent in tether’s dominance.
Despite a String of Contenders, Stablecoins Can’t Topple Tether
Stablecoins have attracted less attention this year because revitalized crypto markets have given traders less cause to rely on them. Last year, everyone was issuing new stablecoins, but that trend has slowed to a trickle. On July 3, a new stablecoin did enter the fray, although this one has no designs on displacing tether. Pink Care Token (PCAT) is a stablecoin issued as part of a Binance-fronted initiative to supply feminine hygiene products to Ugandan women.From an altruistic perspective, the project, which has the support of 46 crypto companies, seems well-intentioned and is indicative of how far stablecoins, and the cryptocurrency industry in general, have come. The same properties that enable donors to track the funds contributed to Binance’s charitable initiative are used to monitor the movements of stablecoins throughout the crypto ecosystem and they paint a picture of a market that’s heavily skewed in tether’s favor.
The Rise and Fall of the Gemini Dollar
One of the most curious casualties in the stablecoin wars has been the Gemini dollar (GUSD). At its peak, the fiat-backed stablecoin’s market cap stood at $103M, but today that has dropped to just $12.5M. Other leading stablecoins have followed a similar trend, with the total number of circulating tokens for paxos, stably and USDC all diminishing this year. The only leading stablecoin to have increased its market cap is tether, which now stands at close to $4B.
Twitter account @usdcoinprinter tracks the issuance of stablecoins, but so far there’s only one token being minted, and what’s more it’s being minted en masse. To place this in context, tether frequently issues 10X the entire market capitalization of its closest competitor in one swoop. USDT is to stablecoins what BTC is to altcoins, but whereas bitcoin’s dominance stands at 62%, tether is capturing 98% of all stablecoin volume. Traders have perfectly viable USDT alternatives, but so far they have yet to see the wisdom or the need to switch. With the vast majority of all stablecoins never leaving the exchanges they’re traded on, it makes little difference to investors what denominated dollar-pegged token they’re using. Tether works – for now, anyway.
The Interminable Tether Debate
Whether you believe tether is propping up bitcoin’s latest rally depends on who you speak to. Some commenters, such as David Gerard, who believes the entire cryptosphere is a giant scam yet can’t resist reporting on anything else, see manipulation. Other discredited critics such as Nouriel Roubini agree. On the other side of the divide, there are more sanguine voices, such as Kraken’s Jesse Powell, who does not ascribe to this theory.“I don’t have inside knowledge of what’s happening at Tether, but I can tell you that, historically, when you’ve seen growth in the supply of Tether, we’ve seen growth in the supply of U.S. dollars coming onto Kraken. And other exchanges would report the same,” he noted.
In other words, correlation does not equal causation. “There are days when you see the price going up ten percent a day. You can bet all the exchanges are onboarding fifty to a hundred thousand new users a day. That is what is driving up the price. It’s huge retail demand and all the media attention on it. It’s not Tether,” insisted the Kraken CEO.
Crypto Assets Backed by Belief
A series of global socio-economic events can be attributed to heightening interest in bitcoin, including escalating trade wars and economic sanctions. Demand for bitcoin in Iran has increased as the U.S. has sought to cut off capital inflows through tightening sanctions. Meanwhile, capital controls in China make it hard for the wealthy to get their money out of the country, with bitcoin one of the few ways in which this can be effectively done. Meanwhile, in the U.S. there’s been a kickback against the super rich, with populist politicians on the left advocating high taxes on the wealthy. Bitcoin is a haven for people who believe they risk having their net worth drastically slashed by punitive taxation.
One thing everyone seems to agree on is that bitcoin’s latest price rally hasn’t been retail driven: Google Trends data shows that interest in buying bitcoin remains low, adding weight to the notion that larger forces are at play, and that global macro trends are driving the action rather than retail FOMO. In other words, tether may have very little to do with it.
Regardless of what’s propping up the cryptoconomy at present, all assets, from bitcoin to the U.S. dollar, are backed by collective belief. For so long as people believe 1 USDT is worth 1 USD, and that 1 USD has an agreed measure of purchasing power, tether will maintain its peg and its near total dominance of the stablecoin market.
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