Home Latest News Is Tether unmoored — or doing just fine? – Forkast News

Is Tether unmoored — or doing just fine? – Forkast News

From the Editor’s Desk
Dear Reader,
Cryptocurrencies have long been derided by skeptics as a “bubble,” but perhaps a better analogy for crypto ― when it comes to the regulatory response to it, at least ― is that it’s like squeezing a balloon. When crypto comes under regulatory pressure in one spot, it has a tendency simply to expand where the pressure is less acute.
So, when it’s in regulatory strife in a jurisdiction such as the United States, where authorities have zealously tightened their grip on it, it’s unsurprising to see it pop out somewhere else. 
That’s exactly what I witnessed during a recent visit to Dubai. In a city that thinks constantly about investing in itself for the future, Web3 is very evidently on the minds of not only its regulators but also throughout the investor ecosystem. Momentum is building as regulators outside the U.S., such as those in Hong Kong, Dubai and Abu Dhabi ― and now the European Union, which just this week approved a landmark legislative framework for crypto ― have adopted a mindset focused on inclusion as digital assets increasingly become part of these jurisdictions’ established financial ecosystems.
Amid crypto’s increasing acceptance as a part of those ecosystems, it’s interesting to observe the war of words that has erupted between former U.S. Securities and Exchange Commission enforcement attorney John Reed Stark and Paolo Ardoino, the tech chief at Tether, the company that runs USDT. Because the active use of USDT globally reflects a more trusting marketplace, many of its users are in emerging and developing countries and depend on it for daily business. Even large firms and crypto exchanges are doing the same. 
Amid the U.S. regulatory fog, I got a glimpse of blue sky. In the latest episode of Word on the Block, I sat down with former Commodity Futures Trading Commission Chair Christopher Giancarlo, who was frank in expressing his disappointment with the way cryptocurrencies, including stablecoins, have been handled by U.S. authorities. His comments were illuminating and clear on the threats to innovation. You can watch my interview with him here.
It’s hard to disagree with the former CFTC chief’s assessment that U.S. finance sector authorities are “like deer caught in the headlights” when it comes to formulating laws and regulations for crypto. And it’s hard not to feel that, as the crypto industry looks increasingly beyond America’s squeezed, enforcement-led regulatory environment and pops out elsewhere, the law that’s being carried out most effectively by U.S. regulators may be the law of unintended consequences.
Until the next time,
Angie Lau,
Founder and Editor-in-Chief
In a series of tweets, John Reed Stark, a former enforcement attorney at the SEC, described Tether — the issuer of USDT — as a “mammoth house of cards” and predicted that the stablecoin would be “the next domino to fall” in the crypto space because of a lack of regulation and Tether’s unwillingness to provide audits of its reserves. 
Forkast.Insights | What does it mean?
Tether has long attracted unwelcome attention due to the somewhat opaque nature of its business. The current round of criticism by former SEC attorney John Reed Stark is nothing new. But calls for greater transparency have become louder of late, thanks largely due to legal requirements imposed by the New York State Attorney General. 
As a result, Tether has published quarterly details of its Bitcoin and gold holdings for the first time. The company’s report revealed that it held, as of March 31, US$1.5 billion of Bitcoin ― roughly 2% of the company’s claimed reserves. 
This is significant because Tether is the primary means by which Bitcoin is bought and sold. When Tether mints new coins, they are largely spent on buying Bitcoin. The fortunes of Tether, as many have suggested, are intimately tied to the fortunes of Bitcoin. Tether holding Bitcoin raises questions about its potentially undue influence on BTC’s price. 
Although Tether’s report has been praised by many in the crypto media as a sign of Tether’s ongoing commitment to transparency, Stark is right to point out that the company still does not go far enough to validate that it possesses what it says it does in reserves. 
While a lack of transparency would typically see investors dump their holdings, Tether, according to its latest report, appears to be doing better than ever. USDT’s market cap is almost back to its all-time peak of US$83.3 billion a year ago — which is almost quadruple its market cap from early 2021, before the stablecoin was denounced and banned by regulators in Canada and New York. 
USDT users surely know, by now, all about the criticisms of Tether, the risks of unaudited reserves, and the company’s troubles with regulators. But clearly, they still don’t care. 
Litecoin, the world’s 12th-largest cryptocurrency by market cap, has seen its price surge more than 16% in the past week as congestion and high transaction fees on the Bitcoin network drove crypto users to seek alternatives.
Forkast.Insights | What does it mean?
Litecoin, one of the earliest Bitcoin clones, has had a stellar run during the past year. Since June 2022, it’s up 30%, and it appears to have outperformed BTC in recent weeks. 
Although its recent performance has come thanks to its low transaction fees and the addition of a token standard that mimics the one that led to the explosion in transaction volume on Bitcoin, many investors are eyeing up the forthcoming halving as another reason to be cheerful. 
Historically, when Litecoin has cut its miner rewards, in a process known as a “halvening,” there has been a price surge in the buildup. The next halvening is due in August (Litecoin doesn’t follow Bitcoin’s halvenings, the next of which will likely occur in April 2024) and it appears to have led to a surge in new accounts and also short-term profit-taking on-chain. 
But while some have suggested that Litecoin is becoming a viable alternative to Bitcoin, data suggests otherwise. It has a fraction of the versatility of Bitcoin as a trading pair. It has a tiny developer ecosystem compared to other chains. And it has shallow liquidity, making it an unlikely replacement for its bigger brother.
Authorities in the Chinese city of Fuzhou — a city of about 3.9 million people about halfway between Hong Kong and Shanghai — have unveiled policies to attract investment by companies associated with the blockchain industry, including rent subsidies for office space and cash rewards for hitting revenue targets.
Forkast.Insights | What does it mean?
Fuzhou’s blockchain industry subsidy plan is remarkable for its unremarkable location and genesis. Fuzhou, famous for its hot springs and architecture from the Ming and Qing dynasties, is considered a second-tier Chinese city. But its ambitious efforts to bring in more capital to develop its local blockchain industry are actually in parallel with the efforts of a number of other municipal governments on the mainland, including Shanghai, Chongqing and Guangzhou, that are rolling out policies and sweeteners to grow China’s Web3 sector.
It’s worth noting that Fuzhou’s efforts, coupled with the opening of Beijing’s new blockchain research center, come as China faces record-high youth unemployment. China’s jobless rate for 16- to 24-year-olds surged to 20.4% last month, marking its highest level since recordkeeping began five years ago, according to official data.
Notwithstanding Beijing’s opposition toward cryptocurrency, the country’s national and local leaders also know that China’s Web3 industry can offer tremendous opportunities to the nation’s young people and benefit the country’s digital economy. Beijing’s new blockchain center, for instance, has already pledged to train at least half a million blockchain professionals. 
It remains to be seen how Chinese authorities will regulate Web3. So far, the nascent industry has been relying on self-regulatory guidelines published by some industry associations, and China’s officialdom — from Beijing to local governments like Fuzhou’s — has appeared to be only supportive. That’s good news not only for China’s young jobseekers but also for companies developing Web3’s non-crypto uses.
Forkast.News is a digital media platform that covers stories about emerging technology at the intersection of business, economy and politics. From Asia, to the world.
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An unmissable weekly round up of the biggest stories in emerging tech from an Asian perspective, featuring commentary from Forkast Editor-in-Chief Angie Lau. Check out recent editions.
Delivered weekly on Thursdays
An unmissable weekly round up of the biggest stories in emerging tech from an Asian perspective, featuring commentary from Forkast Editor-in-Chief Angie Lau. Check out recent editions.