Next to the news from India about the ban of cryptos, the Tether issue has been contributing to the latest price drop in cryptos for good parts. While I don't really see an issue with India (is there a significant number of actual payments being made in cryptos there?), I stumbled across this very good article about the Tether case and then thought. "What now?", so I wanted to share the result of some discussions I've had today.

The Tether issue

I don't want to reiterate too much about what's going on with Tether and why it's so difficult to figure out what's really going on, because it has been laid out quite well in the article cited above or in this NYT article. It's basically that there's uncertainty and a lack of proof about the amount of USD which are supposed to be held by the Tether company to back the value of USDT - basically meaning that if everybody who owns USDT would want to cash out via tether.to, there wouldn't be enough money to pay everyone.

While it's obvious that a clear proof would help destroy those worries and this proof should be rather easy to produce, to me the issue lies somewhere beyond "propping up Bitcoin". Of course, if this is what happened this would've helped Bitcoin price - potentially dramatically - but then again, there's a lot of other factors determining the current price of Bitcoin and the mere fact that it has happened at some point shouldn't influence the current price. Funnily, you could even argue that if trust into USDT dissolves, Bitcoin should actually be considered the more stable or trustworthy currency and therefore increase in price. After all, in my experience, most people trading against USDT have never bought USDT via tether.to, but by selling Bitcoin or other cryptos via Poloniex, Bitfinex, Bittrex, or others.

Ok, this is not what's happening.

What else is going on

Of course, the transparency issues of Tether need to be figured out and people be paid out if they want to. However, if you consider what is actually going on on the exchanges where you can buy / sell USDT, the latest news don't seem to have any impact on the price of USDT vs USD, if you compare the markets on Bitfinex (ok, maybe the wrong place) or Kraken. Even if Tether doesn't hold the USD to back up the USDT, you can currently trade one USDT for one USD there, as well.

Otoh, what is a USD on an exchange like Kraken or Bitfinex? Nothing else than a promise that they'll give you one actual $ on your account in exchange for a reduction of your USD balance by one. Intersting, seems like that's pretty much the same thing that Tether does. Has anyone ever asked Kraken or Bitfinex about how many USD they actually have?

The alternative

So, what happens next? So far, Bitcoin has been the reserve currency for other cryptos, but if we now learn that its price has been manipulated, whom can we trust? How can we still invest in and trade cryptos?

The answer is: Decentralized Exchanges. Here, any manipulation like in the Tether case can be excluded or at least tracked. There simply is no way you could print additional money / tokens without getting caught. So if you want a reliable alternative to Bitcoin or Tether (or USD, for that matter), ETH can serve that purpose - at least for the Ethereum-based tokens, for which there are plenty of decentralized alternatives to trade.

I guess that's also why ETH has been losing much less than Bitcoin based on the Tether news, despite the fact that price manipulation of ETH via USDT is exactly as easy as for BTC.