Bitcoin-Crypto Scare: So What if Tether Isn’t Pegged to the US Dollar?

Bitcoin-Crypto Scare: So What if Tether Isn’t Pegged to the US Dollar?

Lately I’ve read about how Tether is famously pegged to the US Dollar and that if proven insolvent, it can easily crash Bitcoin and all other cryptocurrencies. The rationale is that, since Bitcoin exchanges cannot directly connect with banks due to banks being wary of cryptocurrencies, a “lookalike” dollar is used instead and some exchanges have allowed users to buy Bitcoin by first converting US dollars into Tether on a 1/1 basis so that it’s not tied to any bank, and then Tether can be used to buy Bitcoin, Ethereum and other cryptocurrencies. Tether is now standing on shaky ground since a) the owners cannot prove it’s solvency (that it actually has a like amount of US dollars to Tethers bought), and b) Tether’s relationship with accountants Friedman LLP dissolved. The concern is that once the US dollar isn’t viably represented, nothing can be pegged to it and Cryptocurrences will crash on the basis of not being related to anything.

My question is, so what about Tether? If Tether proves it’s insolvency, then there might be a brief shakeup in Cryptoland but, ultimately Bitcoin and many cryptocurrencies are here to stay. The Blockchain technology, advances to the Lightening network, and the idea that Bitcoin is meant to be a global (non?) currency more widely used than the US Dollar or the Euro really makes the Tether meaningless for other cryptocurrencies at the end of the day. However, exchanges that heavily rely on Tether as if it were the US dollar might need to have a “plan B” in case Tether crashes since the exchanges themselves may crash.

Unfortunately the only way to be a verified exchange, at least according to the New York Department of Financial Services, is to have a Bitlicense, which is insanely expensive (at least $5,000 per application per state) for an application that has no guarantee it will be approved. Many exchanges like Binance for example haven’t applied for one yet. Only six exchanges including itBit and Coinbase have a BitLicense and allow one to buy/sell directly to the US Dollar without needing Tether to act as a middleman. To quote from Inverse.com:

“DFS has not received an application for a license from Binance,” the department confirms to Inverse.

The New York DFS further confirms it “has granted licenses to bitFlyer USA, Coinbase Inc., XRP II and Circle Internet Financial, and charters to Gemini Trust Company and itBit Trust Company.” Coinbase and Ripple, two of the largest exchanges in the market, were issued licenses to operate in New York back in May 2016.

What this appears to mean is that ultimately, those six will survive and will wreak havoc to end users looking for a pleasant trading experience. In past years for example itBit has closed numerous user accounts. From an exchanges standpoint this will be a bitProblem. Fewer exchanges mean fewer transactions in the short-term, but it also means more transactions to fewer exchanges in the long term, which will drive the price of Bitcoin, Ethereum and the rest to their previous prices.

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Rafi Hecht

Rafi Hecht is a web programmer and digital marketing specialist with over 12 years experience. He holds a Masters of Science degree from Stevens Institute of Technology and is both Adwords and Bing Ads certified. Rafi currently lives in Toronto.

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