As finance savvy people around the world find new ways to protect and grow their hard-earned savings, cryptocurrency investments reach new heights.
One hidden gem that has recently been in the spotlight is Tether USDT. If you don’t know much about what Tether is or how it works, don’t worry, this guide is going to break it all down so you can make an informed decision about where to invest your money!
Table of Contents
- 1 What is Tether?
- 2 The History of Tether
- 3 How is Tether Different from Other Cryptocurrencies?
- 4 Why is Tether so Popular?
- 5 Recent Legal Controversy Surrounding Tether
- 6 What is the Relationship Between Tether and USD?
- 7 What is the Relationship Between Tether and Bitcoin?
- 8 Is Tether A Good Long-Term Investment?
- 9 Where Can You Buy Tether?
- 10 Conclusion
What is Tether?
Let’s start with the most straightforward question: What is Tether USDT?
In the world of cryptocurrency, this type of token is called a stable coin. The goal of such crypto options is to maintain a stable value. They are the safest bet for investors who want to dabble in the crypto market but aren’t interested in extreme risk.
The History of Tether
Despite its recent popularity, Tether is by no means a new form of cryptocurrency. Initially launched in July 2014 under the name RealCoin, by its founders Brock Pierce, Craig Sellars, and Reeve Collins, the company changed its name to Tether in November 2014 and started trading in February 2015.
Tether was the first stable coin to be listed or traded in the crypto market. It was designed based on the Mastercoin Omni model that formed the basic protocols for bitcoin.
The company was Hong Kong-based and fell under the umbrella of iFinex Inc, a larger organization that also houses the crypto exchange Bitfinex.
The goal of Tether was simple – to create a coin that allowed efficient exchange and liquidity in the cryptocurrency market but was far more stable than the options that existed at the time. The fact that it was fiat-backed and equivalent to USD in value meant it instantly appealed to a large demographic that included stockbrokers and regular traders.
How is Tether Different from Other Cryptocurrencies?
The biggest criticism you’ll hear about the crypto market is that it is extremely volatile, with sharp rises and falls.
The intense swings in tokens like Bitcoin and Ethereum can make or lose investors millions overnight. As this new form of finance takes shape, these twists and turns are nothing more than growing pains. But not everyone wants to take that kind of risk.
Tether and other stable coins like it are a form of cryptocurrency that retain their value within the crypto market. That is because they are “fiat collateralized.” It sounds complicated but is actually extremely simple. It is backed up by a stable fiat currency, such as the US dollar, Euro, or Yen. The alternatives are coins that either use cryptocurrency as collateral or function like a reserve bank, supplying tokens to meet the economic demand.
Because of how it functions, it makes sense that Tether is a stable coin. This makes it unique since it will neither gain nor lose you money. These are not an investment that will help you grow your wealth. Instead, Tether acts as a bridge between traditional fiat currency and the many crypto options.
Mostly, crypto enthusiasts can use Tether as a way to store money or exchange it for goods and services.
Why is Tether so Popular?
In order to understand the hold Tether has over the cryptocurrency market, you first have to understand how it works and the demand it fulfills.
The company in question, Tether Holdings Ltd., accepts dollar payments from people interested in purchasing cryptocurrency. They take your dollar amount and add the equivalent number of credits or tokens to your digital wallet.
Once you have Tether USDT as a base crypto amount, you can purchase Bitcoin, Ether, or any other crypto options as an investment. You are essentially using your Tether coins to bet on the more volatile cryptocurrency options. Additionally, you can use your USDT to purchase items or services from regular companies that accept payment in crypto.
If you have a beginner’s knowledge of how the finance world works, you’ll realize that this is similar to how banks function, i.e., keeping cash in reserves to back up their credit. Tether Holdings was able to overpower the market and become so successful in this arena because real banks did not want to take the risk and trade with crypto companies.
Since there was a demand in the market for a stable coin that retained its value in a rapidly fluctuating market, Tether filled the gap!
Recent Legal Controversy Surrounding Tether
Cash Reserve Scandal
When the coin was designed by Tether Limited, it was considered a stable coin because the idea was for it to be equivalent to USD.
The company was supposed to hold 1 USD in reserve for each coin they issued. However, as we have already discussed, you cannot exchange USDT for USD because the company is not contractually obligated to facilitate this exchange.
And therein lies the root cause of the recent legal controversy. On April 30, 2019, the company’s lawyer issued a statement that Tether Limited had insufficient cash reserves and could only back up 1 USDT with 0.74 USD. This created a huge public outrage, during which the company promised to release audit reports proving adequate reserves but failed to do so.
Tether, iFinex, and Bitfinex
Then there were further allegations that Tether Limited was manipulating the fluctuating Bitcoin rates. Tether Limited falls under the umbrella of iFinex Inc., which serves as their parent company. iFinex Inc also operates the cryptocurrency exchange Bifinex.
Now, this is where things get a little messy. In April 2019, Letitia James, who serves as New York City’s Attorney General, accused Bifinex of financial fraud. James said that the exchange had taken investor funds and lost 850 million USD. According to the court proceedings, this money was transferred to a Panamanian shell corporation called Crypto Capital with no contract to provide any justification for this exchange.
Bifinex then withdrew 700 million USD from Tether’s reserves so they could hide this exchange. In response to these allegations, Tether Ltd. started minting an excessive amount of coins and flooding the market.
At present, there are 69 billion USDT in circulation, with 48 billion issued during 2021.
The Other Side
Theoretically speaking, if Tether did have the reserves to back up their claims, they would need to hold 69 million USD. This would list them among the 50 biggest banks in America. Yet, Tether is not a US bank but simply an unregulated offshore company.
Ardent supporters of cryptocurrency claim that the US government’s recent accusations are simply a ploy to exert undue influence over a system that is outside of their control.
Stablecoin is an as-yet unregulated system of money management and many experts say that the magnitude and scale of Tether is a direct threat to the current US financial system.
What is the Relationship Between Tether and USD?
In terms of direct corresponding value, 1 Tether or 1 USDT is worth 1 USD. However, it is important to note that the company does not offer a Right of Redemption, meaning that you cannot convert your Tether coins into US dollars.
Additionally, it is important to note that these are not static values. The value of USDT is informed by real-world economic conditions and does fluctuate. Soon after the Bitfinex exchange scandal and the implications of bad practice, investors lost faith in Tether’s legitimacy, and their value dropped to 0.85 USD in October 2018.
However, in the months after, their price shot up to 1.21 USD. In fact, despite the scandal, current data shows that Tether is the highest daily or monthly traded form of cryptocurrency. It shot past Bitcoin statistics for trading volume in early 2019 and has held its dominant position since.
What is the Relationship Between Tether and Bitcoin?
In the world of cryptocurrency, Tether is the number one source of liquidity.
Data from CryptoCompare shows that the majority of Tether trading can be traced to Bitcoin conversion. There’s a good reason for this. When you purchase Bitcoin directly, you have to pay an additional conversion fee using USD or Euro.
However, this fee isn’t applicable if you’re buying Tether. So most investors start off buying Tether and later convert it to Bitcoin or Ether. You would be smart to do the same.
Is Tether A Good Long-Term Investment?
Statistics from the Wall Street Journal show that over 80 percent of all Bitcoin trading is done using USDT.
Despite whatever scandals may have emerged, Tether has established itself as the leading source of crypto liquidity. With regards to its fiat value, values have historically fluctuated between 0.84 USD and 1.21 USD. But with over 69 billion Tether USDT in circulation, it is definitely a reliable form of currency.
Of course, as we’ve already established, Tether is not an investment option that will give you long-term returns but rather the crypto version of spending money. Depending on how you use it, by converting it into other crypto options like Bitcoin and playing the market, you can use your USDT smartly and make a profit.
Where Can You Buy Tether?
For people who want to invest in or trade in the cryptocurrency market, buying Tether is a must.
You can purchase Tether tokens through various exchanges such as Binance, BitFinex, Bittrex, Coinbase, Kraken, Poloniex, Huobi, Liquid.io, Gate.io, or CoinSpot, to name a few. You can use fiat currency like USD or pounds to purchase USDT, but you can also transfer Bitcoin into USDT.
Buying Tether as a starter coin is so attractive because cryptocurrency exchanges often don’t charge any trading fees for people converting USD to stable coin. On the other hand, if you try purchasing Bitcoin with your fiat currency directly, you would have to pay a fee. Hence, all traders begin by purchasing a good amount of Tether coins.
It’s sort of how you would buy chips at a casino. Since this is the currency of the casino, or in this case, the crypto market, once you have the basic trading tool, you can do whatever you like with it. The options are endless.
Overall, if you want to get into cryptocurrency world, you can’t go wrong with Tether. For beginners who are sure where to invest their money, it’s a good strategy to add some USDT to your wallet and explore your options.
By converting small amounts into Bitcoin or Ether, you can get an idea of how the market works.
Since Tether is fiat-backed, it won’t lose value, unlike other volatile cryptocurrencies. That means 1 USDT is equal to 1 USD on average. There may be minor fluctuation in this value, but it isn’t large enough to affect your investment. As an investment tool, Tether will not give you huge gains. To reiterate, this is a starter stable coin, not a high or medium-risk investment option.
You can purchase Tether from any crypto exchange and get a good value since they won’t tax or charge you extra for the conversion.
Additionally, if you want to buy or purchase goods and services using cryptocurrency, you should buy Tether. This is the number one source of liquid cash in the digital money market. While there are plenty of stories and news reports questioning the company’s business integrity, it isn’t something you need to be overly concerned about.
That’s because Tether plays an integral part in the crypto-economic model. More than half of all conversions are either Bitcoin-Tether or Tether-Bitcoin. As a stable coin, Tether has a monopoly with its spread and influence. Removing it from the dynamic altogether would be disastrous. It is unlikely that it will be going away anytime in the near future, regardless of any accusations the US government throws their way.
At the end of the day, cryptocurrency and the decentralized financial model it runs on are all new and developing concepts. So there is a basic level of risk involved as the investors and all the players involved try to find their footing. But now that you know everything about Tether, how it works, the risks, and the benefits, you are in the best position to make an educated decision.