First Mover Asia: Tether Is Quiet About Its Bankers. Will It Affect Its Peg?

Tether has relationships with a number of banks but won't say much more; bitcoin rises slightly.

AccessTimeIconMay 31, 2022 at 11:49 p.m. UTC
Updated Jun 1, 2022 at 2:25 p.m. UTC

James Rubin is CoinDesk's U.S. news editor based on the West Coast.

Damanick was a crypto market analyst at CoinDesk where he wrote the daily Market Wrap and provided technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also a portfolio strategist and does not invest in digital assets.

Good morning. Here’s what’s happening:

Prices: Bitcoin and a few altcoins had a good day; ether was down.

Insights: Tether is honoring 1:1 peg redemptions – so far.

Technician's take: Buyers are reacting to oversold conditions, although upside in BTC appears limited.

Catch the latest episodes of CoinDesk TV for insightful interviews with crypto industry leaders and analysis. And sign up for First Mover, our daily newsletter putting the latest moves in crypto markets in context.

Prices

Bitcoin (BTC): $31,837 +0.3%

Ether (ETH): $1,947 -2.4%

Bitcoin rises, but not ether

Bitcoin continued its recent, mini-rebound on Tuesday, at least temporarily.

The largest cryptocurrency by market capitalization was still chugging along near $32,000, the threshold it crossed during midday trading in a follow-up to a U.S. holiday weekend surge. Bitcoin has risen nearly 8% over the last nearly four days. Still, analysts remained cautious about predicting any long-term bounce to the upside amid ongoing inflationary concerns and the prospect of a recession.

"The emerging rebound from the bottom may be self-sustaining at first, as many market participants believe that the crypto market has corrected enough to become attractive for long-term buying," FxPro Senior Market Analyst Alex Kuptsikevich wrote. "However, fundamentals such as halving, soft monetary policy or accelerated adoption are needed for growth to continue."

Bitcoin was faring better than ether, which spent much of Tuesday in the red and was recently changing hands at about $1,950, a 2% decline. Other altcoins were mixed with SOL and AVAX recently down over 3%, but ADA soaring over 25% at one point amid a a rise in the issuance of native assets on the network and the upcoming Vasil hard fork, a network upgrade expected in June that would increase scaling capabilities. AXS rose more than 15% at one point.

Stocks dropped, breaking a short winning streak as investors weighed central banks' approach to tame rising prices and a decline in the Conference Board's consumer confidence index. The tech-heavy Nasdaq, Dow Jones Industrial Average and S&P 500 all fell less than a percentage point.

Annual inflation in eurozone countries climbed in May to 8.1% annually, its highest level since the launch of the euro currency. Meanwhile, the fallout of Russia's unprovoked invasion of Ukraine continues to grow, with eurozone countries discussing how they might help Ukraine evade a Russian naval blockade to help the country export grain, and separately, the possible seizure of Russian central bank assets. Brent crude oil, a widely regarded measure of energy markets, was trading at over $116 per barrel.

The news was potentially more upbeat in China, where COVID-19 cases plunged below 100 nationwide for the first time since March, and the country's largest city, Shanghai announced plans to begin reopening its economy. And U.S. President Joe Biden met with Fed Chair Jerome Powell and U.S. Treasury Secretary Janet Yellen to discuss ways to combat inflation.

In an appearance on CoinDesk TV's "First Mover" program Tuesday, Opimas CEO and founder Octavio Marenzi noted that possible Federal Reserve flexibility about a rate hike much later in the year after it raises rates at its next two meetings had "given crypto markets breathing room to say 'maybe they're going to go back to printing more money more rapidly.' That's helping crypto in the very, very short term. But I think we're likely to be disappointed in that in the long term."

Markets

S&P 500: 4,132 -0.6%

DJIA: 32,990 -0.6%

Nasdaq: 12,081 -0.4%

Gold: $1,838 -0.7%

Insights

Tether’s various banking relationships don’t matter until we know the whole picture

The Financial Times has a story this week about "some" of Tether’s $73 billion in reserves being stored at a relatively obscure Bahamas bank called Capital Union.

The bank has around $1 billion in assets, so only a small portion of Tether’s reserves could be stored there. Historically, Tether has been something of a banking vagabond; it initially opened accounts in Taiwan (and this is the likely subject of a U.S. Department of Justice probe), and when corresponding banking access was cut off Tether moved on to Montreal and Puerto Rico.

None of this really matters, according to Tether – which has declined to fully disclose its banking relationships – because Tether can process redemptions (conversion of its USDT stablecoin to fiat U.S. dollars) upon request. Tether maintains “strong banking relationships with more than seven, eight banks across the world.” This would be as far as the disclosures will go. Indeed, in the aftermath of the collapse of Terra's UST stablecoin, Tether has processed $10 billion in stablecoin redemptions.

But the market would disagree. In the weeks since Terra’s UST first started showing signs of trouble, Tether has had to fight to maintain USDT's 1:1 peg with the dollar. Circle’s USDC hasn’t had the same problem; in fact, its stablecoin has been pushed above the peg as a result of inbound capital.

Tether’s desire to keep the nature of its banking relationships and reserves secret has already cost it $18.5 million, which is what it paid out in a settlement with the office of the New York Attorney General.

Perhaps Tether believed that if it were totally honest and disclosed its relationships and the nature of its holdings backing its dollar peg, the resulting market chaos would cost it more than $18.5 million. The articles of faith around Tether involve the ability for it to process redemptions, and so far that has held and succeeded in times of crisis – so no need to list out its banking partners and cause unnecessary trouble.

The question is, will this rationale hold, and will USDT’s peg be maintained through this coming bear market.

Technician's take

CoinDesk - Unknown

Bitcoin daily chart shows support/resistance, with RSI on bottom. (Damanick Dantes/CoinDesk, TradingView)

Bitcoin (BTC) broke above a short-term downtrend over the weekend and reclaimed the $30,000 price level. The cryptocurrency is experiencing a relief bounce after several weeks of oversold readings on the charts. Still, resistance at $33,000 and $35,000 could stall the upswing in price.

The relative strength index (RSI) on the daily chart has risen from oversold levels over the past two weeks, which supported the buildup in price momentum. The 14-day RSI is currently neutral and will need to remain above 50 in order to sustain the relief bounce.

On the weekly chart, the RSI is the most oversold since March 2020, which preceded a crypto rally. This time, however, the significant loss of long-term momentum suggests upside could be limited.

For now, price action could stabilize above the $27,000-$30,000 support zone, which could delay additional breakdowns on the chart.

Important events

8:30 a.m. HKT/SGT(0:30 UTC): Japan Jibun Bank Manufacturing PMI

9:45 a.m. HKT/SGT (1:45 a.m. UTC): China Caixin Manufacturing PMI

HKT/SGT(8:30 a.m. UTC); U.K. S&P Global/CIPS Manufacturing PMI

CoinDesk TV

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

President Joe Biden was slated to meet with Federal Reserve Chair Jerome Powell as inflation hovers near its highest level in decades. Opimas CEO and founder Octavio Marenzi shared his thoughts on the crypto markets and potential impact from this highly anticipated White House meeting. Plus, Cyprus's Deputy Minister to the President for Research Kyriacos Kokkinos discussed his country's outlook on regulating digital assets.

Headlines

Singapore to Look at Crypto Use Cases With DBS, JPMorgan and Marketnode: The first stage of "Project Guardian," which is being led by DBS, JPMorgan and Marketnode, will see MAS explore DeFi applications in wholesale funding markets.

Morgan Stanley Says Record Crypto Venture Capital Investment to Slow: Deal activity peaked in December and could fall as much as 50% by year's end, the bank said.

Cardano’s ADA Spikes 25%, Leads Gains in Crypto Majors: Bitcoin showed signs of bottoming out earlier this week, with the broader market adding some 4.4% in the past 24 hours.

Terra's New Luna Token Surges 40% After Listing on Binance: Terra's new luna token has attracted more than $850 million in trade volume over the past 24 hours as it begins to build momentum.

NFT Art Museums Are a Good Idea: The metaverse turns galleries global and helps fund the arts. This article is part of “Metaverse Week."

Longer reads

Letters to Layer 2: We Still Know Nothing About the Metaverse: Will the metaverse be expensive to use? Will there be more than one? Who, ultimately, is responsible for building it?

Today's crypto explainer: What Is a Stablecoin?

Other voices: First she documented the alt-right. Now she’s coming for crypto. (Washington Post)

Said and heard

Senior [European Union] officials are expected to sign off on the oil embargo in the coming days, raising the intensity of the bloc’s economic retaliation against Russia for the war in Ukraine. Leaders of EU member states said late Monday they had agreed in principle to ban Russian crude and refined fuels that arrive on ships, which accounts for at least two-thirds of imports from Russia. The EU also is set to agree on a ban on insuring ships that carry Russian oil, officials and diplomats familiar with the measure said, a move designed to strangle Russia’s access to international oil markets. (The Wall Street Journal) ... "With the right policies, the U.S. can transition from recovery to stable, steady growth and bring down inflation without giving up all these historic gains. During this transition, growth will look different. We will likely see fewer record job-creation numbers, but this won’t be cause for concern. Rather, if average monthly job creation shifts in the next year from current levels of 500,000 to something closer to 150,000, it will be a sign that we are successfully moving into the next phase of recovery – as this kind of job growth is consistent with a low unemployment rate and a healthy economy. Things should also look different from the decades before the [coronavirus] pandemic, when too often we had low growth, low wage gains, and an economy that worked best for the wealthiest Americans." (U.S. President Joe Biden in a Wall Street Journal op-ed)

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James Rubin is CoinDesk's U.S. news editor based on the West Coast.

CoinDesk - Unknown

Damanick was a crypto market analyst at CoinDesk where he wrote the daily Market Wrap and provided technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also a portfolio strategist and does not invest in digital assets.

CoinDesk - Unknown

James Rubin is CoinDesk's U.S. news editor based on the West Coast.

CoinDesk - Unknown

Damanick was a crypto market analyst at CoinDesk where he wrote the daily Market Wrap and provided technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also a portfolio strategist and does not invest in digital assets.