This past week has been an exciting time for the cryptomarkets. We’ve seen big dips that offer great deals for hungry buyers. If you are thinking about hopping into the market, this January has been a great time to buy.
We also have seen a “cleaning” of the markets. BitConnect which many people heralded as a Ponzi scheme shut its doors and left many investors holding serious losses. This is a great reminder to have a careful eye if something does not smell right.
BitConnect promised insane gains, and it delivered, until it could not deliver any more. The collapse of BitConnect led me to research other problem coins on the horizon, and I think I’ve discovered one to avoid.
Let me introduce you to Tether (USDT).
What is Tether?
In the recent market dip, Tether has exploded in growth because investors see it as a safe “holding” area while Ethereum, Ripple, and Bitcoin prices fluctuate.
Many consider Tether to be safe because it is pegged to the U.S. Dollar. It operates as a quasi-fiat currency. The USD offers stability that is not seen in the cryptomarkets. While Bitcoin may drop 10% in an hour, the USD will never see that fluctuation. A lot of people use Tether as a way to buy the dip. Investors see Bitcoin dropping, so they shift their holdings into Tether until the market stablizies or they can buy more Bitcoin on the dip.
Big Problem on the Horizon?
Tether claims to hold USD in cash reserves. For ever Tether sold, it is backed by a dollar, and they claim to hold excess cash over their current market cap.
What is their market cap?
Their market cap is currently around $1.6 billion USD. According to their records, they should be holding $1.6+ billion in cash on hand. How likely is this?
Let me give you a comparison. Johnson and Johnson is a long heralded blue chip company. Strong market presence and it has been a solid performer for decades. It currently holds about $12 billion in cash. Do you really believe a startup cryptocoin is holding 13% of the cash reserves of one of the most succesful companies in the world?
Something doesn’t smell right.
How are they acquiring this cash? It feels like they are claiming to print a hundred millions of dollars a day without any solid proof that the cash reserves even exist.
I would not recommend that anyone keep their money in USDT while the markets fluctuate. It is a risky place to hold. As we saw with BitConnect, if it doesn’t smell right, it can turn south very quickly.
Stay safe and look forward to great gains in 2018. We are still in the infancy of the cryptomarkets. 2018 will be a big public money year as more and more altcoins gain coverage. Invest now, hold, and 2019 should show you some green.