The cryptocurrency market got a much-needed relief rally on Saturday, February 3, 2018, after billions of dollars were erased from market caps earlier in the week. According to CoinMarketCap.com, Bitcoin (BTC) increased 4.08% to just over $9,100, Ethereum (ETH) rallied 5.37% to $959, and Ripple (XRP) climbed 5.18% to $0.91, during trading on Saturday.
Friday was a particularly tough day for the cryptocurrency market, as over $100 billion in value was wiped out in a single day. The crash sent Bitcoin below the $8,000 mark for the first time since November 2017.
After closing out 2017 at record highs, the crypto market has seen a consistent sell off to start off the new year. A wave of bad news continues to halt any rallies in their tracks, as some coins have already become outrageously overvalued.
Global governments continue to step up their scrutiny and regulation of Bitcoin and cryptocurrency, with India being one of the latest countries to make a statement on the digital assets. Recently, India’s Finance Minister, Arun Jaitley, said the country is aiming to eliminate the use of cryptocurrencies in criminal activity, which means that more regulations are on the way. The Philippines’ SEC also recently announced that it will develop regulations for the cryptocurrency markets, particularly Initial Coin Offerings (ICOs).
However, the G20 Summit in March could have a major impact on cryptocurrency and its future. The world’s twenty largest economies with gather together in Argentina next month to discuss a wide array of topics, however, cryptocurrency regulation is expected to be among one of the key areas of discussion. Cryptocurrency investors need to carefully watch and monitor the updates coming out of the G20 Summit later next month, as it is likely some nations could use the platform as a chance to announce new regulations.
While the brunt of the negative press may be focused on the incoming regulatory onslaught, there are growing fears within the cryptocurrency community surrounding one coin in particular, Tether (USDT). A growing number of experts are sounding the alarm on Tether, arguing that the cryptocurrency is being used to prop up the price of Bitcoin. Tether is a cryptocurrency that is supposed to be backed by actual fiat currency, such as U.S. dollar, Euros, and Japanese Yen.
As of February 2018, Tether has a circulating supply of nearly 2.22 billion USDT coins, which is supposed to be backed by $1 U.S. dollar or the equivalent in Euros or Japanese Yen. Over the past several months, Tether has been issuing hundreds of millions of new tokens. This happen to coincide with the cryptocurrency mega-bull-run in late 2017. However, many experts believe that the cryptocurrency does not hold enough fiat currency to back all of its growing supply of USDT.
In addition, there is a considerable amount of concern around Tether’s seemingly very close relationship with the Bitfinex exchange. Tether and Bitfinex were subpoenaed by the U.S. Commodity Futures Trading Commission (CFTC) on December 6, 2017, as the regulator attempts to determine the validity of the allegations.
“Over the past couple of months, a huge amount of tether has been created, it has shifted to the Bitfinex exchange and presumably buys bitcoin and other cryptos. This, I believe, has been keeping the price up,” detailed Nicholas Weaver, a senior researcher at the International Computer Science Institute at Berkeley, to CNBC. “You could see a spike in prices in tether-only bitcoin exchanges. So, on those exchanges only you will see a run up in price compared to the bitcoin exchanges that actually work with actually money. So you would see a huge price diverge as people see that only way they can turn tether into real money is to buy other cryptocurrency then move to another exchange. That is a bank run,” concluded Weaver.
An anonymous statistical analysis report posted online last week clearly shows there is a close relationship between the price of Bitcoin and Tether. The report alleges that Tether was directly responsible for roughly 48.80% of Bitcoin’s overall performance in 2017. Ultimately, the report found that new Tether supply is created when Bitcoin is falling.
“If a Tether debacle unfolds, it will likely cause quite a devastating ripple effect across many of the exchanges that see most of their volumes traded against the supposedly USD-backed cryptocurrency. In such a scenario, we may see cryptocurrency prices retreat quite dramatically in the next month or so,” wrote Thomas Glucksmann, head of APAC business development at the Gatecoin exchange, to CNBC on Friday.
Overall, the cryptocurrency markets received a much-needed breather from the sell-off carnage that has gripped investors for most of the week. However, cryptos are not out of the woods yet, as mounting regulations and the Tether conspiracy continue to cripple the markets. For now, crypto investors are given a chance to regroup and prepare for the next wave of hurdles.