Tether Struggles to Hold Peg After Becoming UnTethered

Although Tether mostly stabilized and nearly regained its $1 peg after becoming “untethered” on Oct 15 2018, it is still trading under $1. This has some notable implications.

First off, before I discuss any of this, let me say this isn’t Tether FUD. I think that history has shown Tether is likely to hold close to its peg, untethering has happened before without any drastic long term consequences, I generally trust the information and claims Tether puts out, and Tether has mostly kept a stable value even at its current price.

All that said, recent events (notably a temporary collapse in the price of Tether on Oct 15th, some rumors, and the release of many new stable coins) have led to an odd situation where 1. it currently costs more to buy BTC with Tether than it does with USD, and 2. Tether is still redeemable for $1 despite costing ~$0.98.

Meanwhile, to add complexity to the whole thing, Bitfinex (which is closely related to Tether) still values Tether at $1.

That is important to note for a few reasons.

Firstly, it is important because when you are looking at the price of Bitcoin on an exchange that uses Tether, there is a good chance the price will be slightly higher than on exchanges that uses USD.

For example, I can buy a Bitcoin on Coinbase for roughly $6.4k right now using USD, but on Binance it costs roughly $6.48k using Tether. Meanwhile, on Bitfinex it costs $6.55k!

When I look at CoinMarketCap I am getting an average price of all exchanges, so I am seeing a higher value on CoinMarketCap than I am on Coinbase because of Tether.

This can be confusing if you don’t know what is going on.

That said, it is also important to note this because it presents arbitrage opportunities and calls into question Tether as a stable coin. Let’s address both those points.

In terms of arbitrage, what you would do is buy Bitcoin in USD on Coinbase, move your Bitcoin to an exchange that uses Tether (ideally Bitfinex due to its $1 price on there), and then sell Bitcoin for Tether. You would then have more Tether than you did dollars (which would be excellent to have if and when Tether gets its $1 peg back). You could stop there, or from there you could go to Binance and buy Bitcoin, or do a number of complex things to exploit the price difference. Arbitrage isn’t simple, it has crazy risks, and it isn’t for novices… but it is a thing.

In terms of the validity of Tether, that is a very complicated issue, but in general one should assume that the current problems with Tether won’t be problems forever. Tether has had a few issues in its lifetime, but it has generally none the less tended to retain its peg over time and is generally trusted by many major exchanges and countless users.

There is no telling what tomorrow will bring, especially with so many new stable coins coming to market, but at the end of the day, as long as Tether is redeemable for $1 USD, it is logical to assume Tether won’t drift too far from its peg.

All that said, if you are in crypto, you have to decide if you want to ever park your funds in a stable coin or not. Many prefer a decentralized solution like DAI, others prefer something regulated like the Paxos and Gemini coins, others stick to USD, meanwhile others are just in non-price stable cryptos like BTC and ETH despite the volatility and risk.

Each money type you choose has risks, if you know the risks and trust the entity backing the coin, then you can make your own decision from there.

The only thing I would say is this, TUSD is not USD. You can’t pay your taxes in Tether and there is no decree that the great Tether experiment must work. If you don’t want the added risk, but do want to go to cash, you can always take the time to go over to Coinbase and cash out to USD.