Tether and USDC Hit Milestones as Stablecoin Growth Continues
Bloomberg
(Bloomberg) – One pillar of this year’s blistering commodities rally – Chinese demand – may be teetering.Beijing aced its economic recovery from the pandemic largely via an expansion in credit and a state-aided construction boom that sucked in raw materials from across the planet. Already the world’s biggest consumer, China spent $150 billion on crude oil, iron ore and copper ore alone in the first four months of 2021. Resurgent demand and rising prices mean that’s $36 billion more than the same period last year.With global commodities rising to record highs, Chinese government officials are trying to temper prices and reduce some of the speculative froth that’s driven markets. Wary of inflating asset bubbles, the People’s Bank of China has also been restricting the flow of money to the economy since last year, albeit gradually to avoid derailing growth. At the same time, funding for infrastructure projects has shown signs of slowing.Economic data for April suggest that both China’s economic expansion and its credit impulse – new credit as a percentage of GDP – may already have crested, putting the rally on a precarious footing. The most obvious impact of China’s deleveraging would fall on those metals keyed to real estate and infrastructure spending, from copper and aluminum, to steel and its main ingredient, iron ore.“Credit is a major driver for commodity prices, and we reckon prices peak when credit peaks,” said Alison Li, co-head of base metals research at Mysteel in Shanghai. “That refers to global credit, but Chinese credit accounts for a big part of it, especially when it comes to infrastructure and property investment.”But the impact of China’s credit pullback could ripple far and wide, threatening the rally in global oil prices and even China’s crop markets. And while tighter money supply hasn’t stopped many metals hitting eye-popping levels in recent weeks, some, like copper, are already seeing consumers shying away from higher prices.“The slowdown in credit will have a negative impact on China’s demand for commodities,” said Hao Zhou, senior emerging markets economist at Commerzbank AG. “So far, property and infrastructure investments haven’t shown an obvious deceleration. But they are likely to trend lower in the second half of this year.”A lag between the withdrawal of credit and stimulus from the economy and its impact on China’s raw material purchases may mean that markets haven’t yet peaked. However, its companies may eventually soften imports due to tighter credit conditions, which means the direction of the global commodity market will hinge on how much the recovery in economies including the U.S. and Europe can continue to drive prices higher.Some sectors have seen policy push an expansion in capacity, such as Beijing’s move to grow the country’s crude oil refining and copper smelting industries. Purchases of the materials needed for production in those sectors may continue to see gains although at a slower pace.One example of slowing purchases is likely to be in refined copper, said Mysteel’s Li. The premium paid for the metal at the port of Yangshan has already hit a four-year low in a sign of waning demand, and imports are likely to fall this year, she said.At the same time, the rally in copper prices probably still has a few months to run, according to a recent note from Citigroup Inc., citing the lag between peak credit and peak demand. From around $9,850 a ton now, the bank expects copper to reach $12,200 by September.It’s a dynamic that’s also playing out in ferrous metals markets.“We’re still at an early phase of tightening in terms of money reaching projects,” said Tomas Gutierrez, an analyst at Kallanish Commodities Ltd. “Iron ore demand reacts with a lag of several months to tightening. Steel demand is still around record highs on the back of the economic recovery and ongoing investments, but is likely to pull back slightly by the end of the year.”For agriculture, credit tightening may only affect China’s soaring crop imports around the margins, said Ma Wenfeng, an analyst at Beijing Orient Agribusiness Consultant Co. Less cash in the system could soften domestic prices by curbing speculation, which may in turn reduce the small proportion of imports handled by private firms, he said.The wider trend is for China’s state-owned giants to keep importing grains to cover the nation’s domestic shortfall, to replenish state reserves and to meet trade deal obligations with the U.S.No DisasterMore broadly, Beijing’s policy tightening doesn’t spell disaster for commodities bulls. For one, the authorities are unlikely to accelerate deleveraging from this point, according the latest comments from the State Council, China’s cabinet.“Internal guidance from our macro department is that the country won’t tighten credit too much – they just won’t loosen further,” said Harry Jiang, head of trading and research at Yonggang Resouces, a commodity trader in Shanghai. “We don’t have many concerns over credit tightening.”And in any case, raw materials markets are no longer almost entirely in thrall to Chinese demand.“In the past, the inflection point of industrial metal prices often coincides with that of China’s credit cycle,” said Larry Hu, chief China economist at Macquarie Group Ltd. “But that doesn’t mean it will be like that this time too, because the U.S. has unleashed much larger stimulus than China, and its demand is very strong.”Hu also pointed to caution among China’s leaders, who probably don’t want to risk choking off their much-admired recovery by sharp swings in policy.“I expect China’s property investment will slow down, but not by too much,” he said. “Infrastructure investment hasn’t changed too much in the past few years, and won’t this year either.”Additionally, China has been pumping up consumer spending as a lever for growth, and isn’t as reliant on infrastructure and property investment as it used to be, said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong. The disruption to global commodities supply because of the pandemic is also a new factor that can support prices, he said.Other policy priorities, such as cutting steel production to make inroads on China’s climate pledges, or boosting the supply of energy products, whether domestically or via purchases from overseas, are other complicating factors when it comes to assessing import demand and prices for specific commodities, according to analysts.(Updates copper price in 11th paragraph.)More stories like this are available on bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Tether Audit and Binance Investigation - What’s the Future of Stablecoins? Stablecoins like USDT have come under fire in recent weeks, casting a doubt on the entire stablecoin market.
Singapore, May 24, 2021 (GLOBE NEWSWIRE) — (via Blockchain Wire) Stablecoins, including Samecoin, have been an important part of the cryptocurrency industry for a long time. They are built as a way of storing digital currency with a stable value that is pegged to a fiat currency, in this instance: USD. But the actual stability and security of some of the biggest stablecoins have long been a murky area. Especially with the biggest stablecoin around, USDT (Tether).
Tether’s recent audit hasn’t stopped the critics
USDT recently hit the news as it underwent a major “audit”, partly to stay in compliance with a recent settlement agreement made between Tether and the New York Attorney General’s Office. But the veracity of this audit has been called into question by many crypto experts. Seen as an attempt to answer critics on what actually backs USDT, the audit still left many unanswered questions.
While Tether released a range of different figures, including that their reserves were made up of 65.39% “Commercial Paper”, no more detail was given—like the individual ratings of these backings or who they were issued by. Tether did not declare who the borrowers of loans were or what the collateral backing them was.
This still leaves a lot of uncertainty around USDT, and has not fanned flames on the rumors that Tether prints tokens in order to back up the market and keep the price of USDT at $1.
Investigation into Binance is another blow for their stablecoin
Major crypto exchange Binance has recently come under Federal investigation for potential money-laundering and tax issues. This casts more doubt on their own stablecoin, BUSD—one of the major and fast-growing stablecoin on the market.
This recent news has caused many to look for an alternative stablecoin option, and has undoubtedly increased the prospects for Samecoin’s new ecosystem. Samecoin has a family of stablecoins like SameUSD that offer a number of benefits in a congested stablecoin market.
Why SameUSD might be the answer
Completely audited (by CertiK) with fully-transparent results, and with a clear smart contract listing exactly what backs every part of the Samecoin ecosystem, SameUSD stays pegged to the value of the dollar by being tied to a basket of other stablecoins—making it resilient against fluctuations so it always stays at $1.
Transparency is at the core of Samecoin’s offering—unlike many other coins that have often been opaque. Samecoin’s stablecoins like SameUSD and SameEUR offer a completely stable environment for people to enjoy the benefits of digital currency with a spendable currency that they can understand, and a coin that they can be sure will retain its stable value. Samecoin’s ecosystem also comes with an easy-to-use payment application, SamePay.
If recent developments have shown us anything, it’s that more transparency is needed in the crypto world, especially when it comes to stablecoins. Samecoin’s SameUSD gives users an extra level of peace of mind and a currency they can trust at all times, unlike some other alternatives. That’s why many experts are starting to recommend Samecoin for your stablecoin needs.
To learn more, follow Samecoin on Twitter and Telegram.
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Karnika Yashwant
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KEY Difference Media
‘It would look very like a bank run’: Cryptocurrencies face dangerous times, critics warn
E
ven by the standards of cryptocurrencies, the past seven days have been a wild ride. The price of bitcoin crashed 30 per cent on Wednesday to $30,000 – less than half the peak reached last month – after China announced a new crackdown and Elon Musk announced Tesla would not accept bitcoin as payment.
Traders sold off almost every major coin, turning exchanges into a sea of red. A rapid rebound later in the week wasn’t enough to recoup the losses. By Monday, bitcoin was back up to $37,700.
Concerningly, the main crypto exchanges weren’t able to cope with the sell-off, experiencing technical outages which left customers temporarily unable to trade.
For critics, these problems give a taste of more serious issues that might occur in the event of a deeper downturn; problems which would have ramifications far beyond cryptoland.
Frances Coppola, a financial economist who has written extensively about cryptocurrencies, believes exchanges could struggle to cope with demand for withdrawals if enough people rush for the door and want to swap their crypto for traditional, or fiat, money.
“It would look very like a traditional bank run,” says Coppola.
“If the exchanges didn’t have enough fiat currency to meet withdrawal requests they would either have to obtain more in a hurry through a fire sale of assets or refuse to allow people to draw down fiat currencies.”
In practice this would mean shutting down their apps which, Coppola points out, might look to a customer like a technical outage.
At the heart of potential problems in the $2-trillion market are stablecoins; a vitally important component of the crypto world which act as a bridge to the traditional financial system.
Stablecoins are so-called because they are pegged to the value of a real-world asset, typically a currency like the dollar.
They alleviate the biggest problem faced by cryptocurrencies: huge volatility. It can be nerve-wracking to go to bed while leaving your savings in an asset like bitcoin that’s fallen 10 per cent by lunchtime, then risen by almost as much by the time you sit down for dinner.
Having a coin anchored to the price of the dollar, pound, or euro, which are in turn backed by central banks, means that people can “cash out” of the crypto market when it gets too choppy.
The availability of stablecoins has been a key factor in driving the recent bull run that saw bitcoin’s price surge 600 per cent between September and April. But critics argue that the stability they claim to offer is a dangerous illusion.
Why? Crucially, when someone swaps their volatile cryptocurrency for a stablecoin such as Tether (by far the most widely used), they are still within the crypto ecosystem. They have not withdrawn real funds into a bank account.
A digital analogue of a dollar is not a dollar. Tether dollars (“USDT”) can’t be used in many places outside of a crypto exchange. Its dollars are not backed by the US Federal Reserve but by an opaque company registered in Hong Kong with a bank account in the Bahamas that has been less than transparent about its financial position. Tether, the company behind the currency of the same name, has been contacted for comment.
Tether derives its value largely from the promise that it can be swapped for real dollars at a 1:1 exchange rate. That promise has looked increasingly shaky. JPMorgan is among those to have warned that a crash in the value of Tether could sink the whole bitcoin market.
“Exchanges market tether as a USD equivalent,” Coppola says. “But there’s no guarantee from exchanges that people will always be able to exchange their tethers for USD and, more importantly, withdraw those dollars from the exchange,”
“And there’s also no guarantee from Tether that people will be able to exchange their tethers for USD.”
Tether disagrees that it faces a problem and says that, whatever price tether may be trading at on exchanges, the company will honour the 1:1 peg with the dollar.
The company is facing increased scrutiny however because it used to claim that for every digital dollar it created, it kept a real one in reserve at the bank.
Then in 2019, it admitted this wasn’t true. It only had enough to cover 74 per cent of its coins and not all of that amount was held in actual cash in the bank. Some had been loaned out. Tether has refused repeated calls to audit its reserves so no one can verify its claims, but the net is closing in.
In February, Tether agreed to pay $18.5m as part of a settlement with the New York Attorney General after a 22-month investigation which concluded: “Tether’s claims that it was at all times backed by dollars was a lie.”
Tether was ordered to file quarterly disclosures stating what assets it is holding in reserve. The first of those disclosures was published last week in the form of a one-page document with two pie charts and no explanation. The company said only 3.9 per cent of the reserves it holds are in cash with the rest of its money lent out to unknown entities of unknown creditworthiness.
For anyone old enough to remember the global financial crisis, some of these points – an institution holding a dangerously low amount of capital; risky debt labelled as safe – may sound familiar
Tether is performing a similar role to a bank, creating money out of nothing and holding only a fraction of cash in reserve for when people want to redeem their tokens. Unlike real banks, it’s largely unregulated. And it’s growing at phenomenal pace. In January last year it had issued $3bn in tethers, now more than $60bn are in circulation.
While a collapse of stablecoins like Tether could have dire consequences for the whole crypto market, a full-blown meltdown similar to 2008 is not likely, says Coppola.
“Nevertheless, an awful lot of people stand to get badly burned if it crashes.”
Just like banks, stablecoins are vulnerable to a run if people lose faith in their solvency and rush for the exit.
During the rapid bitcoin sell-off this week, tether dollars were briefly changing hands for around $0.80, undermining Tether’s central purpose. That price could easily fall further if people’s confidence in the company behind it deteriorates.
A spokesperson for the company said: “Last week, Tether performed extremely well under challenging conditions for many. Subject to our terms of service, Tether issues and redeems one USDT for one dollar: no more, no less. This is irrespective of market conditions.
“As the pioneer of the stablecoin model, Tether represents battle-tested technology that has been through many cycles. Many users were flooding into USDT as a safe harbour.”
The allure of the cryptocurrency revolution has been that it is decentralised and therefore not reliant on powerful, unaccountable institutions. By becoming reliant on stable coins, it has arguably created exactly what it set out to overthrow.