I wish we had some clarity, it's always very difficult to tell our customers something real and this fuels the uncertainty
BTC could tank to below 1k if we don't act quickly
-Bitfinex & Tether CFO "Merlin", Giancarlo Devasini (October, 2018)
Tether's stablecoin "USDT" is often discussed for all the wrong reasons by the cryptocurrency community. A part of the community thinks that the collapse of the USDT peg to the USD dollar is inevitable and may happen any day.
Another part doesn't share these concerns and relies on the reassurances given by comments of Tether executives.
Transparency though is an issue that is not up to debate. When Tether calls transparency a one-pager announcement containing a pie, then even the most optimistic BTC maximalists start to connect a few dots.
Tether provided just this pie to clear doubts and increase transparency.
Even the fact that Tether classified 65% of its reserves as unidentified "commercial paper" in this paper has increased skepticism even more than previously.
Tether certainly has great public relations, since Blockstream's CEO Adam Back and more from Blockstream and the BTC community are backing it. I wouldn't be surprised if @Jack praised USDT next.
And why shouldn't they be backing Tether? It seems that USDT is favoring BTC and supports its dominance. How can we not suspect foul play against other cryptocurrencies? What if Ethereum had managed to surpass Bitcoin during the latest bull run? That would be a new era for cryptocurrencies. Wouldn't the BTC maximalists try everything in their power not to allow it?
The Laser-Eyed Opinion
Some popular figures of the industry have shared their thoughts about the effect of a Tether collapse on the price of BTC.
While some of them are reasonable, there are still many laser-eyed bag holders that don't seem to understand how much of a problem this will be.
One of them that finds everything to be a bullish case for BTC is none other than Dan Held!
According to Dan, an asset that will be found worthless, will somehow magically regain value and convert into BTC.
24B of tokens worth zero are not going to help BTC. When it is found to be worthless, then it's over. It won't be 24B USD (today $63B), it will be $0. You can't convert zero into anything, and when you try something like that it will come back to hunt you.
Being one step ahead of the logic of Dan Held doesn't mean your logic is not flawed.
On the contrary, this guy is also making a rather irrational statement. Laser-Eyes make you not think clearly.
This BTC advocate raises the question of what will happen if all USDT becomes irredeemable. A tweet very similar to Dan's above. Nobody will accept USDT after it is proven worthless. It will become irredeemable, and it's over. What kind of pressure can it put?
Multiplying zero with anything else will always return zero!
As I explain below, just the first few bots will manage to carry orders so fast and liquidate huge orders of USDT in a split of a second. However, this will not help BTC's price, and if it does, it will again be just for a split second.
We don't imagine things with our investments. We find the odds and proceed accordingly.
Larry Cermak is close but not quite there either.
It will be way worse though as we find out next.
The Outcome of USDT Collapse:
USDT trading will be deactivated from all of the top exchanges immediately after it begins failing.
Once the market has realized that USDT is no longer able to maintain the USD peg, it will be too late.
There will be a massive number of trades (Tether liquidations) performed in less than a second and force all major exchange to respond as such:
Immediately halt all trading and restrict deposits/withdrawals
Force log out of all users and enter a lengthy period of maintenance.
Exchanges, as usual, will try to serve their top customers first but there won't be room to maneuver with USDT dollar price at zero.
Many exchanges will collapse due to this effect. Risk of losing crypto held in exchanges.
You won't get any chance to sell your USDT for BTC or USD, not even for 1% of the peg when it collapses. You will just hold a useless token that everyone will be trying to find an exchange to offload.
A "don't panic" campaign will be introduced and Crypto influencers will be split into two groups, one retweeting their negative Tether tweets to prove a point, and another camp that will insist that Tether will regain its peg 1:1 to the USD.
BTC/USDT will skyrocket but only for a split second since all the bots are programmed to dump any amount in this worst-case scenario for Tether.
Coinmarketcap and Gecko will also go on lengthy maintenance to remove all the USDT pairs since the prices on their indexes will display incorrect prices.
Of course, everyone will tweet how Bitcoin reached a million dollars, still, that would be a million worthless USDT instead.
BTCUSD will dump of course, since the market will realize, or suspect that its price was artificially sustained at a higher level with trading volumes mostly between BTC and USDT. These trades will be gone too and another reason for the price of BTC to crash.
Effect on Exchanges
Under the hypothesis that Tether collapses, it will be a huge realization moment for the whole market and mass panic will occur. Some of the top exchanges will not cope well with such an event and will have a very difficult time.
The real problem would begin when withdrawals from top exchanges start delays or rejections for unfounded reasons.
Most exchanges have replaced a huge part of fiat deposits with stablecoins like Tether. This is also a big indicator that could appear months before a scenario like the one discussed here plays out.
For many months before MtGox's collapse and bankruptcy, withdrawals in fiat were delayed and almost suspended.
Moreover, after the MtGox collapse, researchers found evidence of a bot used to manipulate the price of BTC. This was the infamous Willy Bot (in fact it was two bots, connected to Karpeles accounts).
Willy Bot's task was to buy BTC without real deposits in fiat. It was pumping the price of BTC for a very long time with digits not representing real money.
Many Tether skeptics think that Tether is similar to the Willy Bot, however this time the numbers come in billions.
The effect of a USDT collapse on exchanges will lead to the collapse of some of them. Those that are the most exposed in Tether will have no ability to handle withdrawals in real fiat.
Moreover, I'm expecting many of these exchanges to announce hacks since this seems to be the "Plan B" when a difficulty appears.
More predictions about events that will follow:
Regulators will become more strict
More banks will cut connections with Crypto exchanges due to "high risk"
Exchange Hacks and exit scams will increase
Hashtag #Tethered will be trending for a while
Most crypto influencers will be explaining how they were always against Tether
Arrests will be made, but probably the accusants will get out easily, as Karpeles
At least one BTC Maxi will explain how and why he bought the Tether dip!
Many funny memes will appear to alleviate the pain of the investors
BTC Maximalists will claim they never backed it
What I described above is the most probable outcome, "if" (or when) USDT loses its peg to the dollar and becomes worthless.
The above is based on historical events within the Bitcoin market. This is not the first time BTC price is manipulated and the BTC maximalists are content, as long as it keeps BTC in control of the industry.
The whole industry will suffer greatly and for many years.
When the moment of judgment comes you will be looking back and thinking why no action was taken about Tether earlier, when there was still time left.
Right now, I don't think there is any time left.
We still have time to consider the reasons this industry is still at a very immature level and not respected for its merits as one would expect.
BTC is a colossal pump and dump that suppresses other cryptocurrencies from growing and abuses its market-leading position.
In a scenario where Tether collapses, BTC will crash and drag with it the rest of cryptocurrencies. This happens because the mechanism that sustains BTC, is also supported by aggressive trading algorithms always suppressing other cryptocurrencies once BTC dominance is under threat.
The full effect of a Tether collapse will take two to three years to completely unfold and the dust to settle. From the remains of this collapse, devs and communities of crypto enthusiasts will try to rebuilt and decouple from BTC.
As it happened twice before, market conditions do not halt progress, so nothing will be final. Cryptocurrencies will come out of this stronger and a few years later will proceed without BTC dominating and delaying progress.
My previous publications on the topic of Tether and Stablecoins:
Lead Image from: WallpaperUP (modified)
Second Image from: Tether
Third Image from: KnowYourMeme
Fourth Image from WallpaperUP
Fifth Image from: IceCat
Sixth Image from: Link
The Rest Images are Screenshots from Twitter
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Excellent bro. Carry on