Stability has not exactly been a hallmark of the cryptocurrency market but is some developers have been trying to change all that. The search for stability is indeed understandable given the wild price swings that have beset popular cryptocurrencies like Bitcoin, Ethereum, Litecoin and the like.
While enormous fortunes have been made in those highly volatile cryptocurrencies, the losses have been just as extreme. More than one investor has been scared out of this still young market, and many developers have worried that continuing volatility could soon spell the death knell for these alternative forms of payment.
That may be why a new crop of cryptocurrencies has recently emerged, a group that aims for price stability. In some ways, this new group of cryptocurrency, led by the popular Tether, is an attempt to reassure wary investors, individuals, and institutions who see value in cryptocurrencies and the underlying blockchain technology but bristle at the wild and seemingly unpredictable price swings.
The appeal of Tether is certainly understandable, and there has been widespread interest in this new virtual coin. Tether is designed to trade in concert with the U.S. dollar, a move designed to provide stability and reassure investors that the currency will be dollar good.
It should be noted that the value of Tether is not always exactly one U.S. dollar, and that provides both risks and benefits for would-be investors. On any given day, the price of Tether may be above or below that one U.S. dollar benchmark. The actual price of Tether depends on a wide variety of factors, from the current demand for the cryptocurrency to the overall state of the market on any given day.
So far the Tether experiment has produced some mixed results. While the increasing stability of the cryptocurrency market is certainly good news, some people have already found a way to exploit that stability.
For quite some time, the stock market has been plagued by scalping, a highly sophisticated trading strategy designed to reap massive profits from tiny moves in the prices of the underlying securities. Traders have taken advantage of these small price moves, using high-frequency trading strategies and high-powered computer systems to reap their rewards.
Now cryptocurrency traders are following suit, and stable coins like Tether have been a tempting target. The fact that the price of Tether is pegged to the value of the U.S. dollar has allowed scalpers to profit from small price movements. These high net worth investors have invaded the Tether market, and the market for similar stable coins, turning a well-intentioned experiment into another way to exploit their advantage.
The manipulation of Tether and the use of scalping to reap ill-gotten gains is just one more example of how greed has corrupted the market for cryptocurrencies and the technological revolution the blockchain represents. By exploiting investors, high-frequency traders could be undermining the confidence the developers of Tether and other stable coins have worked so hard to create.
Only time will tell what the future holds for the cryptocurrency market in general and stable coins like Tether in particular. The stable coin experiment is still relatively new, and the mixed results do offer a glimmer of hope. While there is always room for manipulation, even in a coin that is pegged to the value of the U.S. dollar, the relative stability of Tether and coins like it could attract investors who have been scared off by the volatility in other types of cryptocurrency.
Will investors who have been burned by the wild swings in Bitcoin and other cryptocurrencies be reassured by the relative stability of Tether, and by the fact that the coin is backed up by the price of the U.S. dollar? Or will they view the use of scalping and the exploitation of the high-frequency traders? Only time will tell.