Tether has always been somewhat shady and has been seen as speculative by the traditional banking system. Nevertheless, its supply is booming in recent times and this might be a reason for the current surge of cryptocurrency in people.
Tether is basically a cryptocurrency and its value is tethered; rather let’s say, anchored, against the value of our traditional currencies like US Dollars. It claims to combine the perks of both the worlds, fiat and digital. It is said that the circulating tether should be backed by an equal amount of traditional currency. This is what the company holds in reserve.
Surge in Supply
In the year 2017, there has been an aggressive surge in the supply of Tether. Just because the tether’s price is tagged with fiat, market capitalization is governed by the supply of tethers. The cap that was around $6.9 million last year in November 2016 has now grown to around $645 million in one year. A major chunk of this growth has happened in the first few weeks of November 2017 alone in which the supply grew by as much as $200 million.
As mentioned earlier that the tagging of each cryptocurrency is with an equal amount of fiat, there have been several questions on how the company has maintained its balance sheet with these growing numbers.
Transparency vs. Non-transparency
As per the website of Tether, there is a transparency page that shows the company’s balance sheet is almost real-time. They also claim that they have regular audits when it comes to auditing their reserves. Following speculations, Tether had hired Friedman LLP, who calmed down the speculations after issuing a memo. However, the questions have been resurfacing after the sudden hike after September 2017 when the supply again increased.
Bots – Markus and Willy
It is an understandable fact that when trade is done using the non-existent money, the price has to shoot up anyway. This was done in 2013 when Markus and Willy, the two bots were made to buy Bitcoins at regular intervals. This resulted in a severe hike in the pricing of digital money. It took years to overcome the crash by Bitcoin as well as the collapse that Mt. Gox had experienced.
Nevertheless, the supply increase of Tether, which is equivalent to $200 million dollars in the previous month is probably not very significant when it comes to the trading volume of Bitcoin, which is $5 billion. But anything that occurs with Tether has to have a major impact on the whole bitcoin ecosystem. If one sees the debates and speculation going on social media, we would know how people are overvaluing Tether and how stable they think the company is.
Mandatory Audits and Transparency
Tether is undoubtedly doing well but in order to gain the full trust of people and especially the cryptocurrency fraternity, they need to be more open and transparent about their mechanisms and functions. They can do this by hiring an audit consultant or an agency. Moreover, they need to be open about the assets that they own and how their balance sheets maintain this kind of cash as well as their banker’s information.
There is another huge concern on their website where they say that they don’t’ take any responsibility of the exchange or redemption of tethers, which is like disowning their own business and it doesn’t really give out a sound message!