Market Surges As Tether Sells Off

Doesn’t Seem Move Is Sustainable, But It’s Certainly A Wild Market Right Now

Right after we just got done chastising the market for its recent boring behaviour, it showed us that it still has many surprises left.

Late in the night (for us), the market suddenly exploded in price and volume.

Unfortunately the culprit was everyone’s least-favorite boogeyman: Tether.

What happened last night was the culmination (for now) of the last week of news regarding the controversial stablecoin.

After we saw the announcement that Bitfinex had suspended fiat deposits to their platform due to issues, this started to create a slow creeping decline in Tether’s valuation.

By the time the party got kicked off last night, Tether was trading for around $0.98 on average, a notable departure for a coin that is supposed to trade 1:1 with the USD.  

What occurred was really a perfect storm of circumstance. Shorts had been rising due to BTC’s fall last week, and what really set the spark was a sudden panic flight from USDT to BTC on Bitfinex. With a shortage of BTC on the platform, it created a price arbitrage against other exchanges. BTC was now trading at a 2% premium on Bitfinex, or around $300 more.  

We’ve seen this happen before, but never in such a drastic fashion. The supply glut of USDT on Bitfinex was further exacerbated by fears of Bitfinex’s / Tether’s insolvency following recent reports. Add on new transparent and audible stablecoins (two things that Tether certainly lacks) and many holding USDT on exchanges across the crypto space started to panic. Binance, OkEx, Bitforex, Huobi, and many other exchanges started to see massive movement from USDT to BTC.

This of course led to a surge in price aa demand surged across the board, driving the price of Bitcoin up over $1000 in the span of an hour on some exchanges. Of course, this was not going well for the BTC shorts, who were liquidated in a spectacular fashion. It should be noted that it’s not accurate to say that the shorts caused the surge, but rather they added fuel to already burning fire.

After a couple hour of this high volume, people started to take profits and that helped to curb the upswing.

Before long we were seeing the market start to reverse and even the shorts started to recover as people jumped in on an opportunity to short a massively overbought asset.

Truly, it was a spectacle to watch in real-time, and was reminiscent of the market we saw last year around this time.

At this point it’s anyone’s guess as to where Bitcoin goes from here.

If it’s not already apparent, it’s time to stop using USDT to park your cryptoassets. Paxos, TrueUSD, and DAI are all exellent choices, and we’re looking into USD Coin (USDC) by Circle and GUSD by Gemini.

Tether is likely to continue to operate as it has or die a slow death, but the common argument for why it hasn’t blown up already is that if they were insolvent they would have already gone under when the US Government subpoenaed them last December.

Bitfinex has since come out and said that they expect fiat deposits to work tomorrow, and that fiat withdrawals have always worked, but several users have claimed that withdrawals are not going through and that the system is suffering from instability.

The takeaway from this whole debacle is that if you don’t own your keys, you don’t own the crypto. It’s becoming more and more clear that unless Tether begins the process of getting regulatory approval, it’s days are numbered. I would also advise caution against any hasty actions right now. Often when there is confusion and uncertainty, the best move is to wait.

In other news today, we learned that Fidelity has launched a new digital assets company focused on custody and trade execution.

Yes, I agree with what you’re probably thinking, this seems mundane and routine at this point. We’re probably in the double-digits in terms of Wall St. announcements.

But, hear me out.

Fidelity’s announcement is for an operational project (i.e., an entirely separate company) that will focus on giving institutional investors access to top notch trading and custody solution for digital assets. They’ve named the company “Fidelity Digital Assets”.

From the mouth of Fidelity CEO Abigail Johnson:

“Our goal is to make digitally native assets, such as bitcoin, more accessible to investors, we expect to continue investing and experimenting, over the long-term, with ways to make this emerging asset class easier for our clients to understand and use.”

So, what’s the takeaway here?

For one, Fidelity is an absolutely massive company, managing over $7 trillion in assets for retail investors and institutions.

Additionally, they serve as one of the top 401k providers in the U.S. (retirement funds for my non-US readers), and they offer many different financial products.

What’s really exciting to me is how they could incorporate cryptocurrency and other assets into these existing financial products that they are industry leaders of.

In short, it’s clear Fidelity is making large moves into the digital asset space — and that this isn’t just noise. They’re here to dominate and should become a leading force in this evolving space.

So today’s big theme is the ice is starting to clear and we’re starting to see the market move in substantial ways. Moving beyond Tether and institutional players moving in are things we’ve marked as requisite for the space to advance, and it’s fitting we get both on the same day.

Undoubtedly, this week is already very interesting.

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Defensive Actions for the next trading day: 

• None.