Crypto Weekly: Numerous all-time highs

The crypto market hits an all-time high

In terms of prices, the crypto market had a positive week last week upon the listing of the first US-based Bitcoin ETF based on futures named ProShares Bitcoin Strategy ETF (BITOUSD). The ETF was arguably popular among traders. With nearly $1bn worth of the ETF traded the first day, it is the second-most traded US ETF on its debut day. Though it was the first ETF at hitting $1bn in assets under management, more precisely it reached $1.1bn in two trading days. Ironically, the ETF having reached $1bn in assets under management the fastest prior to the Bitcoin futures ETF was the first US-based gold ETF in 2004 named SPDR Gold Shares ETF (GLDMUSD), which managed to hit $1bn in assets under management in three days. To surpass this long-standing record of the gold ETF virtually gives some depth to the core argument of bitcoin maximalists that Bitcoin is ‘digital gold’.

Upon the listing of the Bitcoin futures ETF last week, the Bitcoin spot price experienced a substantial price increase to the extent where it hit an all-time high of nearly 67,000 (BTCUSD), breaking its previous all-time high of 64,900 set in April this year. Overall, the combined cryptocurrency market capitalization hit a record high of $2.7trn last week, also influenced by the surge of the second-largest cryptocurrency Ethereum. The latter just barely hit a new all-time high of 4,375 (ETHUSD) last week, slightly above its previous all-time high of 4,357 which was set on 12 May, before declining in price again. As of writing, Bitcoin is trading at 63,000, while Ethereum trades at 4,132.

Once again Tether is in the spotlight

The largest stablecoin-issuer measured on USD in circulation, Tether, has once again been in the spotlight. Shortly, the background of Tether is that it was fundamentally the first to issue stablecoins, which are tokens closely correlated to a given fiat currency, mostly the USD. In general, the issuer holds the fiat in bank accounts or other more low-risk papers such as short-term US Treasury bills to back the fiat value issued in stablecoins. At the moment, Tether has issued close to $70bn worth of its stablecoin named USDT, thus being a significant number. Over the last years, though, Tether has been criticized as it has not fully disclosed its holdings intended to back USDT. This essentially raises the question of whether USDT is in essence backed by legitimate value held in fiat or other low-risk papers.

For years particularly US regulators have investigated Tether. Two weeks ago this culminated as Tether was fined $41mn by the US Commodity Futures Trading Commission (CFTC) for allegedly claiming ‘misleading’ statements about its fiat-backed reserves. The CFTC states that these ‘misleading’ statements were at least the case from 1 June 2016, to 25 February 2019, meaning the CFTC does not clarify whether it is the case today as well.

The famous short-selling research firm Hindenburg Research announced last week an up to $1mn bounty to whoever provides information concerning Tether’s reserve holdings. The bounty has allegedly been launched due to the firm’s doubts about the legitimacy of Tether’s backing. Simultaneously, Hindenburg Research disclosed that it, as of writing, does not hold any positions long nor short in Tether, Bitcoin, or any cryptocurrency. Tether has called the bounty a ‘pathetic bid for attention’.

Similar to the influence of the stablecoin market which is worth $128bn, USDT’s influence on the crypto market should not be underestimated. As the most liquid cryptocurrency pairs on spot and derivates are mainly quoted in USDT, it has an utmost influence on the liquidity and trading of cryptocurrencies. At the same time, in case USDT is not properly backed, it effectively means that there is value fairly similar to fiat in the crypto ecosystem, which does not account for legitimate value, but whereas users expect it has so. In essence, this can practically be used to immorally drive prices of cryptocurrencies up as long as somebody wants to be on the other side of the trade, and hence, receive the stablecoin in return for their cryptocurrencies. If USDT is not properly backed, and this becomes apparent for the market, it will arguably lead to traders dumping their USDT for fiat or crypto while weakening the trust of regulators in the market, effectively meaning it can have considerable consequences for the overall crypto market.

In September, the United States Securities and Exchange Commission (SEC) Chair Gary Gensler called stablecoins for poker chips: “… the poker chip is these stablecoins at the casino gaming tables’. Due to this statement, we are likely going to see further regulation, not only in the US, but around the world. Further regulation is not necessarily unfavorable for the market since it can lower the uncertainty surrounding stablecoins backing.