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The cryptocurrency market could be in for a period of panic, selling soon if Tether’s custodian bank fails to raise funds for its operations, stated Modern Consensus on Oct.1.
Earlier this week, Puerto Rico-based Noble Bank stated it’s struggling to keep afloat in the absence of investor interest. The bank reportedly enjoys a lot of its liquidity due to Tether’s U.S. dollar holdings, valued at $2.8 billion as per data collated by CoinMarketCap.
Noble reached out to several cryptocurrency businesses to seek funds, including a cryptocurrency exchange and another private stablecoin, with both deals being rejected outright. However, the size of these deals remains unknown – meaning their acceptance may not save the bank from its fund crisis.
A source with knowledge of the matter believes Noble “only has a few days left” before it shuts down, terming the bank’s situation “desperate.” Keeping the bank’s financial situation aside, its shut down could have far-reaching implications for the cryptocurrency market – which relies heavily on Tether for providing stability to investors.
The controversial stablecoin doubles up as a trading pair for most retailers and is the world’s eighth largest cryptocurrency by market cap. Interestingly, more than half of all bitcoin trading since August 2018 has been against tether, according to data compiled by Cryptocompare.
Meanwhile, sources suggest cryptocurrency traders with large Tether holdings are trying to unload the stablecoin for fiat, with one seller reportedly having “tens of millions of tethers” without a reliable counterparty.
The development arrives right after reputed cryptocurrency businesses launched their stablecoin offerings. Last week, crypto-finance company Circle announced the USD Coin – a stablecoin pegged to the dollar – with Gemini starting its own Gemini Dollar in late-August 2018. Traders wary of Tether’s questionable, intransparent business activities are likely to shift to the recent products.
In addition to their reputed backing, the market’s newer stablecoin products boast of being audited and regulated by the New York Department of Financial Services (NYDFS). In comparison, Tether lost its chief auditor, Friedman LP, back in January 2018 amidst claims its product is “impossible” to audit using traditional methods.
For the uninitiated, Tether’s controversies stem from the company’s lack of verifiable funds backings its tokens. While the tethers are said to be pegged 1-to-1 to the U.S. dollar, cryptocurrency enthusiasts speculate the company has been issuing un-backed tokens.
In April 2017, American financial services giant Wells Fargo cut off banking of Tether, and subsequently Bitfinex, one of the world’s largest cryptocurrency exchanges. However, the company soon announced multiple issuances of tethers, with the total amount crossing $2 billion at the end of 2017.