All through the year so far, the coin markets have been experiencing massive selloffs. According to Coinmarketcap, and industry tracker, the total coin value has fell by around 55%. The total value had peaked above $830 billion on the 7th of January, but it is now down to about $370 billion. Nearly all major coins have suffered massive losses in value, and only a few have survived. The most notable of these is USDT, whose value has more or less remained the same. This exception in the coin markets has put USDT in the spotlight, and it does indeed the attention. (Does BTC Stand A Chance To Becoming The Worldwide currency?)
What is USDT coin?
USDT is not a new coin, but it has been on the news of late for both good and bad reasons. Any news is crucial when participating in the coin markets as it can have a major impact on the coin’s value. As for USDT, it has been surprisingly stable even through the toughest times in the coin markets. To understand how this is possible, we have to go back to the beginning and explore the technology behind it.
The company behind USDT coin is USDT Limited. It is incorporated in Hong Kong, but is actually regulated in the British Virgin Islands. The coin was created in 2015 with the purpose of circumventing fiat money transactions. To achieve this, one US Dollar backed up each USDT coin. In so doing, the creators of the coin were hoping to circumvent the use of fiat currency completely as people opted to use coin for its many benefits such as anonymity, low transaction fees and speed. Furthermore, USDT could have been used as a store of value where people could store their money digitally rather than in a bank. (What Will Be The Impact Of A BTC Fork?)
At first, USDT coins were issued based on a blockchain technology similar to that of BTC, but this was later switched to a Litecoin-similar technology. As the popularity and demand for coins continued to increase, USDT Limited realized that the scalability problems with BTC could have prevented the growth of USDT coin. Therefore, they switched to Litecoin’s blockchain technology that allows faster transaction speeds. (The: 5 Most Popular Uses of BTC and other Coins)
The rise of USDT
This was a very good idea because many banks and financial regulators had just started paying more attention to coins. In the first few years, coins were only viewed as an interesting idea, fascinating to tech geeks and enthusiasts, but it was becoming clearer that there was too much invested. As a result, even the banks felt threatened and began giving coin exchanges and individual users a hard time with processing transactions. Some countries even made laws prohibiting the purchase of coins by asking the banks deny payment requests to coin exchanges. Most of all, banks and other financial institutions were scared off by the high volatility in coins. (Do you know these: 5 Tips to Choosing the Ideal Coin Exchange?)
Through USDT coin, though, users could be able to purchase any coin of their choice using USDT coin instead of fiat money. The argument was that, since the value of USDT coins is pegged to the US dollar, it would not have as much volatility as other coins. Both the individuals and financial institutions would feel safer dealing with USDT rather than another coin that could fluctuate by double digits in a day. (These are: The 3 Most Trusted Exchange Authorities in The World)
Around March 2015, soon after USDT coin was launched, the company had a total value of just over $250,000. Since each USDT coin was worth $1, there had been about 250,000 total coins in circulation. Today, there are over $2.2 billion USDT coins in circulation, raising the coin’s total value to over $2.2 billion as well. On Coinmarketcap, USDT is the 20th largest coin by value beating even BTG and ZEC. (Try these: Alternative Coins beside BTC to invest in)
What is behind the coin selloff?
This month, the coin markets have been in a severe downturn, losing more than 55% of the total value. The main reason behind this massive selloff has been the fear of stricter regulations around coins around the world. Two major coin markets, China and South Korea have already banned ICOs completely while China has already ordered that coin exchanges to be closed. Now South Korea too is planning to ban coin exchanges and go even further to discourage coin trading in general.
Meanwhile, China is already making plans for toughening its laws on coins even further to discourage even peer-to-peer trading. Of late, India is already speaking of tougher regulations on coins. While it may not be a key coin market in the worldwide scale, the move could trigger a domino effect to other countries.
Most of the popular coins suffered from this selloff including BTC that fell by over 55% from a high of $17,500 to under $8,000. Other popular coins too like Ethereum, Ripple, Litecoin, BCH, etc. all had the same experience. Yet in the midst of all this chaos, USDT continued to rise in value and maintain its value all through the month. (Do you know: What will happen to Ethereum in 2018?)
Why did USDT not suffer from the same selloff?
Since each USDT coin is pegged to a US dollar, the value of the coin does not change. Therefore, despite the massive selloff around the entire ecosystem, USDT did not have the same fate. In fact, USDT actually increased in value throughout the selloff by more than 400% from around $450 million to the current value. Because of USDT’s use as the preferred coin for switching between coins, it has had an increasing 24-hour trading volume from under 1 billion to a peak of 5.4 billion on the 17th of January – right when the selloff was happening. (The: BTC Cash Vs. BTC: Confrontation Forecast in 2018)
This expansion in value has been due to the increasing number of USDT coins in circulation from the initial 250 million to the current 2.2 billion coins. At the same time, this has caused some controversy as to whether the company actually has the fiat currency to back up the coins. The CFTC subpoenaed both the company and Bitfinex, where it is listed, perhaps to ask about the company’s finances. The results of the investigations will have a huge impact on the entire industry, since USDT coin has been used as one of the most popular methods to purchase coins. (You’ve got to have these: 10 Most Important Resources to a Coin Trader)
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