A sudden exit from the most popular dollar-linked cryptocurrency ripped through digital asset markets on Monday, saddling some investors with losses while launching Bitcoin to its biggest gain in more than three weeks.
Tether, the so-called “stablecoin” used as a substitute for the U.S. currency on cryptocurrency exchanges around the globe, broke its historically tight link with the dollar, touching 85 cents on U.S.-based venue Kraken.
Transactions on Binance, one of the world’s most active platforms for Tether, recently implied a price of about 96 cents, according to CoinMarketCap.com. Bitcoin jumped as much as Nine percent to $6,759 as Tether holders shifted into alternative virtual currencies.
“If traders begin to flee Tether, it’s a potentially precarious situation,” said Vijay Ayyar, head of business development at Luno, a cryptocurrency exchange. “It basically suggests a lot of volatility ahead.”
While skeptics have long doubted whether Tether was fully backed by dollars as its issuer has claimed, markets have mostly shrugged off those concerns and treated the coin as if it were worth $1.
Tether’s stability helped it become a major part of global cryptocurrency ecosystem, with traders using it for about 20% of all virtual currency transactions tracked by CoinMarketCap.com — second only to Bitcoin.
However faith in Tether abruptly diminished on Monday amid renewed speculation over the financial health and banking relationships of Bitfinex, a cryptocurrency exchange that shares a chief executive officer with Tether’s issuer.
Similar rumors earlier this month prompted Bitfinex to issue a statement last week denying allegations that it was insolvent.
In a Medium post after several hours of market turbulence on Monday, Bitfinex said that withdrawals from the exchange were being processed as usual although fiat-currency deposits had been paused for certain users.
Many crypto-related firms have struggled to maintain banking relationships as regulators in the U.S.A and elsewhere scrutinize the industry’s exposure to risks including market manipulation, money laundering, and security breaches.
For Tether’s issuer, a viable bank account is an important part of its pledge to redeem the coins for one dollar each.