What will happen to the crypto market if Tether (USDT) collapses?

Tether, or stablecoin as it is often called, is now going through its hard times. But, of course, there would be no such concern about this if the collapse of this currency did not mean a potential collapse of the exchange, the price of bitcoin, and the entire cryptocurrency world.

It’s no secret that the entire cryptocurrency market is based on doubt, fear, and uncertainty. And the apogee of all this is the tether coin. Unlike bitcoin, ether, and other popular cryptocurrencies, Tether is a stablecoin. This means that, unlike other cryptocurrencies, the price of a tether should not fluctuate too much. According to supporters of this currency, it is pegged to the US dollar and is more stable than other cryptocurrencies. It should have been the best solution for those who want stability and cheapness.

However, it has recently become clear that all the advantages of the above stable coin remain in doubt. Many skeptics wondered if what the company that created the stablecoin claims is true. After all, the company claims that each unit in circulation corresponds to the US dollar that it holds in reserve. If a company has a dollar for each coin, any owner can sell Tether back to the other crypto companies for an equal amount of dollars at any time they wish. This belief keeps the cost of the Tether tied to the dollar.

The main problems associated with the Tether

When critics at the Bitcoin conference demanded that the company confirm its reserves through an external full audit, it failed to do so. On top of that, the tether company confirmed rumors that it was breaking off relations with the accounting firm Friedman LLP, which was supposed to carry out these checks.

This is not the only problem. With the company unable to confirm its reserves, it is rightly suspected that stable coin is timing the issuance of new coins to coincide with the fall in the price of bitcoin. And then they use them to mine bitcoins.

The underlying problem is that Tether is helping to stabilize many cryptocurrency exchanges in a variety of ways. In the event of the collapse of stable coins, some exchanges may fall, due to which many billions of dollars of investments may collapse. At the same time, the growing public interest in other cryptos, such as bitcoin and ether, could be destroyed.

The Bank of Cryptocurrencies

A huge number of exchanges are at the forefront where blockchain-based digital currency is traded. These include exchanges such as Bittrex, Kraken, and Coinbase.

Not so long ago, some exchanges stopped working with banking partners and could not find new ones, which became a problem for many speculators who sold bitcoins for dollars. Under such circumstances, the stable coin became popular as it offered buyers the opportunity to avoid crypto trading volatility. Moreover, they could be sure that by buying a tether, the currency would not terra’s collapse too quickly, since it was pegged to fiat money.

The first problems began to appear when the two largest banks, Bank of Taiwan and Wells Fargo refused to continue to support tether transactions. The same thing happened to the management of the major cryptocurrency exchange Bitfinex, whose senior staff had similar positions in the Tether. But despite this, the company continued to issue new tethers and deposit them into the Bitfinex account.

The rapid creation of new coins has raised more questions for the Tether. And it all became more justified when an anonymous statistical analysis came out, which showed that the release of new tether tokens coincides with the fall in the price of bitcoins. However, if the stable coin holds enough dollar reserves, these observations do not bode a huge problem. It is for this reason that many require an external audit.

What happens if Tether collapses?

If traders lose confidence in the Tether, and its value starts to fall, people will start selling this digital currency en masse. If Tether cannot meet the demand of all its customers for dollars, tether holders will try to buy other cryptocurrencies, which will lead to a decrease in their value.

As the role of the stable coin as an intermediary will decline, investors will lose interest and trust in this crypto. And, in the end, hold Tether will lose money, which in general will reflect badly on all crypto in the long run, as people will have less confidence in digital currencies in general.

Another concern is that the Bitfinex exchange could shut down and take all the bitcoins they hold. This is due to the fact that people who trade on the exchange allow their money to be kept. It is these traders who are most at risk.

Not so stable coin?

In the past week, developers shut down the network’s blockchain to prevent attacks following the Tether’s collapse of the stable coin and its associated Luna token. At the same time, Tether fell below its 1:1 dollar peg, hitting a low of 95 cents.

According to CoinMarketCap, the Tether is the largest stable coin and, together with USD Coin and Binance USD, they account for almost 87% of the total stable coin market value. This is almost the amount of 170 billion dollars.

A biennial financial stability report by the US Federal Reserve indicated that stable coins are vulnerable to investor flight. This is due to the fact that they are bereft of assets that can depreciate very quickly during periods of so-called market stress.


Crypto investors should continue to keep a close eye on the stable coin. Right now, it looks like Tether and Bitfinex are about to crash. However, it is worth noting that Tether’s assets are still at a stable level, but the situation is very fragile. No one can say for sure what happens if the Tether collapses. However, we can confidently say that crypto exchanges and prices for certain types of digital currencies are at great risk.


Do Dollars back tether?

Tether says the token has full support. In addition, the peg has been a major factor influencing investors’ buyback decisions in recent days. So yes, you can exchange coins for dollars.

Is Tether a good investment in 2022?

As a stablecoin, it should stay around $1, but this is not always the case in practice. What matters is that it is no longer a means to make or lose money, it is a stable source of value.

Is Tether a safe coin?

Tether is a cryptocurrency that provides secure digital property at a stable price. Tether has a fixed price, but it can be quite volatile lately, especially amid the recent turmoil and rumors around this currency.

What is better to choose: bitcoin or stable coin?

The main advantage of stable coins is stability. However, recently the stability of some of them has been questioned, but it is still a good alternative for those who want stability. Bitcoins and other cryptocurrencies are more suitable for those who want to earn cash. But in this case, you are more at risk, because other types of crypto are very unstable, and you can both earn cash and lose it.