Summary 

• Tether is a stablecoin, whose value is pegged to the US dollar.
• It can be used for buying other cryptocurrencies, transferring money, and earning interest.
• Tether has recently seen a surge amid the Black Thursday sell-off in March 2020.

The cryptocurrency market has been growing and attracting investors across the globe. But the last two months have been quite stressful for the cryptocurrency investors due to instability and turbulence in the crypto market. During the crash, the most popular cryptocurrencies such as Bitcoin and Ethereum have also witnessed a steep fall in their value. On 20 July, the cryptocurrency fell as much as 5% to $29,300, its lowest level since 22 June. Other cryptocurrencies also lost nearly 5%. With this, Bitcoin’s losses for July 2021 touched 15%. In April, it touched its peak $65,000. Since then, it has fallen by more than 50%.

Although the cryptocurrency market is still unstable and extremely volatile, many cryptocurrencies have seen a spike in their value and have made a decent comeback. Due to this uncertain set of circumstances, some investors have started buying the dips, which means buying more cryptocurrencies when the price goes down as it is cheaper, and then waiting for the market to recover, while other investors are in a hurry to dump their crypto holdings when the market crashes.

Also read: How Bitcoin went from offering 122% YTD return to being an underperformer

During the recorrection of the crypto market, Tether, which is one of the oldest and popular cryptocurrencies, upsurged to the highest since the global stock market crash known as Black Thursday sell-off on 12 March 2020.

What is Tether?

At present, Tether, commonly known as USDT, holds a position of the third largest cryptocurrency, with a market capitalisation of more than US $60 billion. Cryptocurrency market leaders, such as Bitcoin and Ethereum, are way ahead of Tether. But unlike others, Tether is a stablecoin and has its value pegged to the US dollar. If a stablecoin is fully backed by dollar, it has a 1:1 relationship with it, which means that the value of 1 USDT is equivalent to US $1.

As the name suggests, stablecoins are more stable, contrary to their crypto counterparts like Bitcoin, which witness frequent fluctuations due to constantly changing market conditions. Tether is the most popular stablecoin but investing in Tether is different from investing in a typical cryptocurrency.

Before investing in Tether

Although Tether is also a cryptocurrency based on peer-to-peer blockchain technology, it is a stablecoin and it mirrors the movement of dollar. The investor should understand that investing in Tether is not a good option in hope of a future price rise, like in case of other cryptocurrencies.

Instead of looking at Tether as a cryptocurrency investment for high returns, it should be bought for other reasons, such as purchasing other cryptocurrencies, transferring money, and earning interest. Transferring money from a bank account to a crypto exchange takes days, thus Tether can be directly used to make the cryptocurrency purchase in this case. Tether is also a feasible option for sending money between crypto wallets and exchanges. Though there is a standard blockchain fees involved in such transactions, no fees are charged by Tether for the transactions carried out between Tether wallets.

Also read: How does crypto mining work?

Although some cryptocurrencies pay interest, Tether has advantages over them as its value doesn’t fluctuate as much. Earning interest is possible in other cryptocurrencies, but the probability of losing money is also quite high in case of a price dip of the cryptocurrency you’re lending. It is possible to earn up to 25% interest lending out coins, and Tether is among the safer options to earn interest.

Controversies and lawsuits

Issued by Tether Limited, Tether is one of the oldest cryptocurrencies, and one of the earliest successful stablecoins. But controversy and skepticism has surrounded Tether and it doesn’t have a very good reputation due to issues related to trustworthiness. Contrary to the claim of the company that each USDT is backed by US $1, the information released by it in March 2021 showed that its reserves were not enough, and just 2.9% of Tether is backed by dollar. Besides, a lawsuit was also filed against the company for an alleged cover-up associated with Bitfinex, which is a crypto exchange run by the same management as Tether Limited. According to the New York Attorney General, around US $700 million was transferred from Tether’s reserves to Bitfinex when it lost US $850 million. The case was closed after both the companies paid a fine of US $18.5 million.

Also read: 5 popular blockchain companies in the world

Tether has also been subject to the allegation that it has been used to manipulate and artificially pump the price of bitcoin. To understand the price inflation of bitcoin, it is important to understand that unlike bitcoin where coin mining is necessary, Tether Limited may release any number of coins as it wants. Due to transparency issues, it may be possible that the company could mint new coins and then use them to buy bitcoin, which will in turn raise the bitcoin price. 

Another important thing to note is that the claim of 1 USDT being equal to US $1 may be subject to demand and supply fluctuations as well. For some time, the price of Tether fell to $0.90 in 2018, and rose up to $1.06 recently in 2020, thus there is no guarantee that 1 USDT will be redeemable for exactly $1.

Even though Tether is associated with controversies and investors face issues related to transparency, still Tether is a safer option for investors looking for stability, as it has less exposure to market fluctuations as compared to other cryptocurrencies.

How to buy Tether in the UK?

Most of the crypto exchanges offer Tether, and almost all the cryptocurrencies and even fiat currencies such as US dollars, Pounds, and Euros, can be used to purchase Tether. Tether can be bought by creating an account on any cryptocurrency exchange that is engaged in selling it. If you are an investor in the UK, some good options for you with decent fees and high standards of security include Binance, Coinbase, and Kraken.

Also read: Was the market correct on Bitcoin price prediction?

Some necessary ID documents are required to be submitted and certain information needs to be filled in to create an account on a crypto exchange. When the information is verified and the account is created, Tether can be purchased using a range of payment methods, including Credit Cards, PayPal, Debit Cards, and ACH bank account transfers. Bank account transfers are a relatively better option as they charge lesser transaction fee, but it also takes more time to reach the crypto exchange account. Alternatively, the other given options charge additional fee but save time. In case of Tether, it is more appropriate to choose bank transfer and save the additional fee, as it is a stablecoin. Tether can be purchased as per your needs after your crypto exchange wallet is credited with the balance.

Conclusion

Tether is a suitable option for investors who want to avoid the extreme volatility in the crypto market, and it can prove to be a beneficial investment in the coming 3-5 years. But it is also important to understand the risks associated with investing in Tether. Tether can be used for various purposes as mentioned above, but it may not necessarily be a long-term investment which will give you profits by itself, as it is pegged to the US dollar. Before investing in Tether, you should understand its pros and cons, and then decide if it is a suitable investment option for you.