Tether continues to trade below its stated target value of 1.0000 via its stable coin ‘mandate’, and its failure to attain the target for nearly a month may be a loud warning.
Failure to Maintain 1.00000000 value in Tether
USDT/USD is trading near 0.99892000 via a Coinbase quote as of this writing. The last time Tether traded above the 1.0000 level in a sustained manner was in the last week of April. Since the destruction of TerraUSD, USDT/USD has not attained its objective as a stable coin in a month and a half.
One of the Tether functions in the cryptocurrency world is to facilitate transactions for digital asset businesses. If a tech firm, for instance, were to initiate an investment for a project in the crypto world, they might ask for the equivalent of 1 million USD. This transaction via the funding in the investment is often paid for via a stable coin. Tether is a mainstay of these investment deals.
Receiving Tether allows the business taking in the stable coin investments, to ‘know’ they hold what is supposed to be a nearly exact USD based exchange rate, if they decide to cash in their Tether if they need dollars to pay bills. The problem for USDT/USD currently is that the exchange rate is not meeting this need and expectation.
Yes, a crypto based business could say, ‘well, we know the rate is now 99 cents on the dollar, so we need to ask for more Tether to make sure we get the equivalent of our investment asking price in USD’. OK, good enough, but this creates complications that are unwanted.
The silence of Tether not trading at 1.000 speaks about a much more problematic possibility in the cryptocurrency world. What if USDT/USD is actually starting to show signs of fatigue? What if USDT/USD continues to incrementally lose a little bit of its value moving forward?
Where have the Speculators Gone?
Is it possible there are large speculative funds betting against Tether and shorting the stable coin with the belief it will continue to lose value? If funds are wagering against Tether and have the fortitude to maintain long term selling positions against USDT/USD, they could trigger big problems down the road if they are proven correct.
The cryptocurrency world is showing massive signs that speculators are not participating. While Bitcoin has been able to maintain some semblance of value, BTC/USD is still stumbling near lows and has not been able to create a large reversal higher. Bitcoin is struggling during this prolonged bearish trend. The mantra that cryptocurrencies are a hedge against inflation has proven brazenly false.
Even worse is that most of the other cryptos are struggling too. Ethereum continues to test lower values. As of this writing ETH/USD is near the 1674.00 ratio. Technical support levels are faltering and there appears to be no momentous wave of speculative zeal flourishing which is looking to buy into the digital asset world on the notion that cryptos are oversold. Cardano, Avalanche, Solana, Polkadot and Ripple are all struggling via their coins.
HODL mantra, Corporate Treasury and Hedge Funds
If speculators really have gone away, this leaves the folks who are die hard supporters known as HODL’ers (Hold on for Dear Life). It also leaves intriguingly major companies who have purchased some digital assets such as Bitcoin and cryptos such as Ethereum as ‘assets’ within their corporate treasury structures. There are also hedge fund companies that are holding cryptos as speculative investments. What if corporate treasury suddenly gets scared and decides to cash out of the digital asset world? Will the directors of MicroStrategy and Tesla get nervous and force sales of their digital asset holdings? Michael Saylor has repeatedly said no and that he will keep buying Bitcoin for MicroStrategy.
The lack of a rise in cryptocurrencies during this long bearish trend, and the notion that no massive reversal has been demonstrated during the large erosion of value the past two months is a potentially negative bad sign. Critical technical support levels have been tested repeatedly and their penetration lower is a loud screaming sign that something is going wrong from a short term speculative point of view. It doesn’t appear that we have reached the end of the downturn in cryptocurrencies yet.
If some deep pocketed folks are betting against Tether as a stable coin and believe its value will continue to dwindle without a fight upwards, the silence of USDT/USD recently in the digital asset world may prove to be vicious signal that worse is going to come for cryptos in the coming months.
Cryptocurrencies remain speculating. No matter what some folks say, digital assets over the long haul still have a questionable future via utilitarian capabilities and as their technology evolves. Corporate treasury and hedge funds who ‘invest’ in digital assets are speculating and they may pay a heavy price if they bet on the wrong direction.
The inability of USDT/USD to move back towards its 1.000 value is troubling. If speculators stay on the sidelines and do not participate in cryptos, corporations and hedge funds holding digital assets may be forced to start capitulating . Meaning they may start to sell. If directors of companies and speculative hedge funds start to get nervous about the long term outlook for Bitcoin, and Tether continues to loss value while it proclaims it is a stable coin – then darker days will come.
