Cryptocurrency collapse: Economists panic over Tether – could be ‘Black Swan’ of industry
Cryptocurrency: Expert on how financial system is being 'remade'
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There has been a number of worrying claims from senior economists who believe that a loss of confidence in Tether could be crypto’s “Black Swan”. This refers to an unpredictable event that could severely impact the market. Nascent cryptocurrencies may also be impacted, with some economists fearing that markets beyond digital currencies might suffer from consequences too.
Tether is very similar to Bitcoin in that they both fall into the category of cryptocurrencies. However, there is one huge difference.
Tether, as well as being a cryptocurrency, is a stablecoin.
Stablecoins, unlike Bitcoin, are tied to real-world assets, to maintain a stable value.
An example of a real-world asset is the US dollar.
Boston Fed President Eric Rosengren said: “These stablecoins are becoming more popular.
“A future crisis could easily be triggered as these become a more important sector of the financial market, unless we start regulating them and making sure that there’s actually a lot more stable stability to what’s being marketed to the general public as a stablecoin.”
The US credit rating agency added: “Fewer risks are posed by coins that are fully backed by safe, highly liquid assets, although authorities may still be concerned if the footprint is potentially global or systemic.
“Whereas stablecoins that use fractional reserves or adopt higher-risk asset allocation may face a greater run risk.”
While analysts at JPMorgan have previously warned of a “severe liquidity shock to the broader cryptocurrency market” if there was a loss of confidence in Tether.
Most cryptocurrencies are volatile, which means that their value can change rapidly.
Bitcoin’s value, for example, hit an all-time high of almost $65,000 in April. Since then it has nearly halved.
Tether, which is tied to the dollar, should in theory always keep the same price. And that price should be equivalent to one dollar.
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However, that’s not always the case, and this is what has worried some investors and economists.
A cryptocurrency is often referred to as a digital or virtual currency.
One of the main benefits of digital money is that it is almost impossible to counterfeit or double-spend it.
Bitcoin has been enjoying a period of stability lately after huge fluctuations earlier this year.
The price moved by less than half a percent between Tuesday and Wednesday.
This morning its value has remained at $35,000.
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