Midweek cryptocurrency market and news round-up 17 October
Tether has had a pretty wild effect on the market in the past week, so we're going to switch things up a bit today and start with Tether news.
USDT recently hit a low of 92 cents, and has recently been tending to ride under $1.
As you probably know, USDT is a stablecoin which means it is meant to be pegged to the price of the US dollar. So the fact that people are letting go of it for less than a dollar means something is very wrong.
Clearly the market is losing faith in Tether. But to fully understand why this is happening, let's dial the clock back a bit.
Tether's troubles started earlier this year, when mounting industry pressure led it to hire a third party to conduct an external audit and prove Tether's claims that they had one dollar for every USDT.
Tether claims that each 1 USDT is backed by 1 US dollar; a perfect 1:1 ratio. However, this has never been confirmed.
So Tether hired audit firm Friedman LLC to conduct an audit of Tether's accounts. Unfortunately what should have been a simple operation broke down, and Tether "dissolved" its relationship with LLC in a matter of days.
In Tether's own words, this relationship was dissolved once Tether understood "the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether".
However months later, Tether changed its tune.
As finder reported back in June this year, Tether spoke with Bloomberg and said that the real reason it hadn't yet released an audit was that Tether's books are just too complicated to audit because they involve cryptocurrency. They then went one further and said that major auditing firms wouldn't even consider auditing a cryptocurrency company.
"The big four firms are anathema to that level of risk," said Tether general counsel Stuart Hoegner.
However this is clearly not true. The big four accounting firms, and many others, are heavily involved in cryptocurrency and have been for years.
So this brings us up to the present day, where the market is clearly losing faith in Tether's claims that its USDT is actually backed up by US dollars.
To make matters worse, USDT is owned by Tether LLC which is managed by the same team that manage the exchange Bitfinex. In recent days Bitfinex has been in trouble. Last week it was forced to deny rumours of insolvency, then it had to admit it was having trouble maintaining a fiat bank account, which led to the suspension of fiat deposits on the platform.
Eventually it was revealed that this was because Noble Bank, who provided services to Bitfinex, were no longer profitable and were ditching clients as they looked to sell the bank. Worse still, Bitfinex's banking troubles also extend to Tether, as the pair are co-managed and have a history of using the same banking partner. In fact, Bloomberg reports that last year the two firms were dropped from Wells Fargo & Co, after being subpoenaed by U.S. Commodity Futures Trading Commission in December last year.
To make things even more unclear, Bitfinex and Tether share a complex business structure that spans from Hong-Kong to the British Virgin Islands, with plans to relocate to Switzerland in the future.
As for its troubled history of banking, Bitfinex and Tether have set up bank accounts in a list of countries including the United States, Taiwan and Puerto Rico.
Hardly the image of stability.
Following the closure of their Puerto Rican bank account, there are now rumours that Bitfinex has established an account with HSBC, albeit under a different name, Global Trading Solutions. The information about HSBC came from Larry Cermak, Head Analyst at The Block and formerly Diar Research, but has not been confirmed by Bitfinex.
Given that Bitfinex, and by extension Tether LLC, is struggling to get its fiat accounting under control, you can see why people are nervous that Tether may not actually be able to pay out in US dollars when the time comes.
So what we are left with is a long history of opaque business practices, poor communication, too many closed bank accounts, and still no Tether audit – which all adds up to a marketplace full of doubt.
As for why everything spilled over yesterday – USDT has been trading, on average, for under a dollar all month. As you can see on this chart from Coin Watch, the price began to divert from $1 in late September, gradually tapering off before a big break down recently when panic selling kicked in and triggered a price landslide.
No doubt traders have been watching the price slide all month, and thinking about exactly how low the price would have to get before they made an exit.
On the flip side though, there's clearly enough traders there who aren't bothered by Bitfinex or Tether's troubles, and see this as a great opportunity for arbitrage and easy profit.
Tether is currently still struggling to get back to its dollar peg.
Many other USD stablecoins are actually still trading at a premium, as traders continue to get out of their USDT positions and into something they trust more.
TrueUSD has recently been trading for a massive premium of 7 cents, at $1.07. A couple of days ago it managed to hit a record breaking $1.15 according to CoinMarketCap data.
In fact one of the coins helping that premium price was Tether itself. On both Bittrex and Binance where you can trade USDT against TrueUSD, traders were swapping their USDT for TrueUSD for a premium of $1.04.
If that doesn't show distrust I don't know what does.
Over on Gemini, the Gemini Dollar, which only just started trading last month, has been boasting a 5 cent premium at $1.05. And the Maker DAI is at $1.01. Who ever would have thought that stable coins could get so exciting?
Moving on to Ethereum which has been mostly holding steady in the last 24 hours, despite some unfortunate news about its next big update. Ethereum's upcoming Constantinople fork went live on the Ropsten testnet a few days ago, but has faced some issues since launch.
Firstly there was the issue that not enough miners had updated their client to support the test net, so no blocks were being mined, stalling the whole testnet.
Once clients had been upgraded, it was discovered that the various Ethereum clients, aka the software that runs an individual node, were not in harmony with each other. Geth and Parity, two of the most popular Ethereum clients, were found to be charging different gas amounts for the same transaction. Furthermore, the Harmony client was out of sync with at least three different other clients.
The result was a three-way fork of Ethereum on the test net.
This has led to Ethereum developer, Afri Schoeden to announce via twitter that there was officially a consensus issue on Ropsten, and that there would be no Constantinople update coming to Ethereum in 2018.
Constantinople is the next major update planned for Ethereum and is part two of the larger Metropolis update, which is part of the road toward Proof-of-Stake on Ethereum. Constantinople will implement five improvement proposals, including one very contentious update that will reduce the mining reward on Ethereum by one third.
Binance launches in Africa
Binance has begun to deliver on its promise to go global with an exchange on every continent. Yesterday Binance went live in Uganda, with it's first ever fiat-to-crypto branch. The new branch will start accepting Ugandan shillings this Wednesday. The first fiat-pairs will be BTC and ETH, with more planned in the future.
Binance has not been shy about its plans for world domination, with fiat-crypto gateways planned across the globe. Late last month Binance announced it will begin a private beta for a fiat-to-crypto exchange in Singapore.
OKEx adds four new stablecoins
There's no denying that stablecoins are the topic of the day, and it looks like the worlds third biggest exchange by volume agrees. This morning OKEx went ahead and listed four new stablecoins all at once.
The coins include TrueUSD, USD Coin, Gemini Dollar and Paxos Standard Token, all of which are pegged to the value of the US dollar.
- TrueUSD is currently the 50th largest coin by marketcap, which makes it the most popular stablecoin behind Tether.
- Gemini Dollar was launched by the Winklevoss twins' Gemini exchange last month.
- Paxos standard, like Gemini Dollar, is also approved by the New York State Department of Financial Services.
- And USD Coin is produced by Circle Invest and is already available on Coinbase, Huobi and Poloniex.
Before you go...
Apple (co-founder) embraces blockchain
Steve Wozinak, co-founder of Apple and largely credited as the tech mastermind of the company, has announced the formation of QUI Global, a venture capital fund that focuses on blockchain technology. The platform is targeted at "sophisticated investors" who will be able to make use of a token, named EquiToken, which allows access to investments made through the platform.
Wozinak's involvement is actually a huge deal. Wozinak made it clear he rarely participates in business offers, saying that it is "about the second time in twenty years" that he has agreed to be involved in a project, according to CoinTelegraph.
Speaking about QUI Global itself, Wozinak said the company aims to "seek, support and fund the blockchain and tech stars of tomorrow" and that they already have "over 20 businesses" which have been developed, but not yet launched.