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New research by TokenAnalyst suggests that controversial stablecoin Tether is responsible for the recent rally in Bitcoin prices which provided a breakthrough from the year-long crypto winter.
What’s the relationship?
According to TokenAnalyst, the value of Bitcoin increased 7 out of every 10 times new Tether coins are issued. This means a 70% correlation between the price of Bitcoin and new USDT issuance. It suggests that the rise in the value of Bitcoin this year could also be attributed to Tether since about $2 billion worth of these coins were issued in 2019 alone.
This is not the first time that Tether has been linked with Bitcoin price movements. Many researchers have pointed out the uncanny relationship between the two popular cryptocurrencies in the past. In fact, it was recently revealed that Tether’s transaction volume could be even higher than Bitcoin.
What makes Tether controversial?
Tether (USDT) was a pioneering stablecoin in the market that aimed to provide more liquidity in the $200 billion-dollar cryptocurrency sector. Tether is linked 1:1 with the US Dollar, making it a type of digital dollar with stable prices. The price of one Tether coin is always equal to 1 US Dollar. However, Tether is a very opaque company and doesn’t reveal much about its processes and business. It has a sister company called Bitfinex, running one of the most popular cryptocurrency exchanges in the world.
The company recently entered a public spat and legal battle with the New York Attorney General who said that Bitfinex used Tether’s funds to hide a multi-million-dollar loss. The two companies fought back and said that the AG did not have jurisdiction over the company, a claim that was later upheld by the court as well.
Technically, Tether should only be issued when the company has sufficient dollar reserves to back up their issuance. However, this is where the problems with Tether began. Because of the lack of transparency adopted by the government, it is very difficult to pinpoint when and why Tether issues new coins. Company officials suggest that new coins are minted when their large customers place orders for the same.
In some countries, like China, people may even get Tether coins by simply paying cash upfront. Analyst often suggests that Tether is a digitized form of the dollar for people around the world which provides them easy liquidity and lets you access the crypto world with ease.