FUD, Tether, Bitcoin & Safety of Gold

There was more volatility in crypto markets overnight on news around subpoenas being served on one of the world’s biggest exchanges, Bitfinex, and the revelation that the embattled USD Tether coin is controlled by the same CEO.  Whilst this apparently happened back on 6 December, it hit the news last night and only a day after learning their auditor decided to part ways, which is never confidence inspiring.  Despite preaching complete transparency, Tether still refuse to reveal an audit of the USD backing their ‘safe haven’ coin.

As expected the scare mongers in the mainstream press have weighed in stating that Bitcoin could crash up to 80% if it turns out the price has been artificially pumped up by controversial cryptocurrency Tether.  It would seem far more realistic to think that any loss of confidence in this dollar substitute token would instead result in the coin being traded back into Bitcoin and other Cryptocurrencies, increasing their demand and price.  Let’s however see if economics and common sense prevails. 

It is also safe to think that Investors will continue to look to park profits or hedge against Cryptocurrency volatility and will now, instead of using Tether, look at other assets classes to incorporate into their portfolio, especially those that share monetary asset properties and are more tangible such as bullion.   Coincidentally there has also been recent press around a cryptocurrency backed by gold being developed by Perth Mint to entice investors back to precious metals.  With this still being developed and the decline in the Greenback we believe gold and silver bullion are to remain as one of the more appealing options when looking to protect profit and hedge against risk and volatility across foreign exchange, equities and cryptocurrency markets.  

As a result of these revelations around Tether it is also reasonable to think that governmental regulatory bodies introducing changes to the cryptocurrency markets will be looking to apply standards similar to those of Basel II.  These initially controlled how much capital banks were required to hold to guard against the financial and operational risks they face. Similar standards could be applied to cryptocurrency exchanges and token/coin issuers. Such changes and safe guards should be widely welcomed by investors and market participants who want more protection, and are now arguably needed more than ever before.  

In addition to Bitfinex this all comes as Japan’s financial regulator is now looking to inspect each of its exchanges after Coincheck, a popular Tokyo based exchange, suffered the “biggest heist in history” with hackers stealing $400 Million worth of NEM tokens. To combat such risks, we still believe the safest guard against this is to store your cryptocurrency wealth offline in “cold wallets” such as Paper Wallets (like our Ainslie Crypto Wallet) or secure hardware devices like the Nano Ledger S. As always, knowledge will be the strongest safeguard against any of these risks and you should do your own research to see what suits your investment needs.  If you neither use Tether nor recklessly use an exchange, ask yourself how this news really matters?

There is a common acronym used in crypto circles, FUD, standing for Fear, Uncertainty and Doubt.  The price action overnight, and indeed any on news that fundamentally has little to do with the value of an investment, would appear to be a victim of knee-jerk FUD.