Price Spiral Warning issued on major stablecoins as Bitcoin and Ethereum rebound from crypto crash bottoms

Tether, the $74 billion stablecoin issued by Tether Holdings Limited, has faced increased scrutiny since it caused the $1 trillion crash of Bitcoin, Ethereum and cryptocurrency (and more pain is believed to be on the way).

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The price of Bitcoin fell last week to its lowest since the start of the crypto price rally in late 2020 – it has lost nearly 50% since its all-time high of $70,000 per bitcoin in November. Meanwhile, Ethereum and other smaller cryptocurrencies saw an even sharper selloff as panic suddenly spread to NFTs.

Now, a Barclays strategist has warned that the cables, which claims to have sufficient reserves of US dollars and dollar-equivalent assets to maintain their peg to the dollar, could be hit by the price spiral if owners rush to sell them “quickly before and the price drops even more.” .

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Rope holders can either exchange their ropes with the company or they can sell them on the secondary market to other traders.

However, Barclay analyst Joe Abate pointed to a little-known warning put in place by Tether Holdings to prevent sudden outflows, which require rope holders who want to swap their ropes for company dollars to create a company account, exchanging at least $100,000. Ropes and pay a 0.1% withdrawal fee.

My father wrote in a note I saw BloombergExplaining how the rush of stockholders to unload their ropes in the event of a crash in bitcoin and cryptocurrency can cause a cascade of prices.

“When the price of crypto assets is going up, it is easy to sell off stablecoins, as there are a lot of enthusiastic buyers who are willing to get the token equally. But that liquidity dries up quickly when the prices of other crypto assets go down, such as on March 17, 2020. Or last week. Even modest selling causes prices to drop and transaction volumes shrink as buyers disappear. In the case of Tether, the pressure to sell increases due to the inability of most investors to redeem directly, as well as an inherent first-mover advantage: selling the token quickly before it drops​ Its more expensive.”

Last week, the exchange rate in the secondary market for Tether fell to 95 cents before recovering mostly, but it is still just under $1, according to CoinMarketCap data, as the crash in the bitcoin and cryptocurrency market sent traders rushing out.

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“Tether is not making this easy or cheap, by charging redemption fees and imposing minimum paper withdrawal amounts,” Abate wrote, adding that this “indicates that the token may be proactive,” as merchants are forced into the secondary market in a rush to recover. their limitations at the best possible price.

Barclay’s warning comes as Tether Holdings published a report detailing its assets during the first quarter of 2022. The report was prepared by an independent audit firm, MHA Cayman, and shows that Tether Holding’s consolidated assets exceeded its consolidated liabilities at the end of March – indicating until the rope is fully supported.

“Last week has been a clear example of the power and resilience of Tether,” Paolo Ardoino, chief technology officer of Tether Holding who is also an executive at major crypto exchange Bitfinex, wrote in a blog post.

“This latest certification further highlights that Tether is fully backed and its reserve composition is robust, conservative and torrential.”

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