Tether came under mounting strain on Thursday, pushing the price of one of the most important assets in global crypto markets well below its $1 peg.
The $80bn stablecoin, which is designed to track the value of the US dollar one-for-one, fell as low as 96.29 cents early in the European trading day on Thursday, according to a CryptoCompare index that tracks trading on the world’s top digital asset exchanges.
Stablecoins claim to provide crypto traders with a safe place to park their cash between making bets on volatile cryptocurrencies. Tether, by far the world’s biggest stablecoin, plays a crucial role in facilitating trading across the crypto market and also provides a link with the traditional financial system.
The fall in the price of Tether to more than 3 per cent below its $1 peg ricocheted across the digital asset market. Bitcoin, the most actively traded cryptocurrency, fell almost 7 per cent to $26,250, the lowest level since December 2020.
Tether’s decline comes after TerraUSD, a much smaller stablecoin, has become completely unmoored from its peg against the dollar. Tether, unlike TerraUSD, claims to be backed by a basket of dollar-based assets. However, its backers have declined to provide granular details of its holdings.
The group was hit with a $41mn fine from the US Commodity Futures Trading Commission last year over allegations that it made misleading statements from at least June 2016 to February 2019 about having sufficient dollar reserves to back each of its stablecoins in circulation.
Regulators have cited stablecoins, which are largely unregulated in most markets, as a risk to financial stability. The Federal Reserve said earlier this week that just three stablecoins, Tether, USDCoin and Binance USD, make up 80 per cent of the $180bn market.