I’ve had a lot of questions about crypto coming from friends and family lately. Many of them are particularly concerned that Elon Musk can apparently move this huge market by himself.
So I want to make it clear that I don’t really believe Elon was the primary reason we sold off recently. He was more a catalyst that gave the market an excuse to sell off.
I suspect the more important reason we sold off was Tether (USDT) drama. It turns out most of the “dollars” backing USDT consist of “commercial paper,” which is considered a fairly risky asset. Many people expected them to hold their reserves primarily in US treasury securities. Here’s the key excerpt from CoinTelegraph’s reporting:
According to the Tether Holdings Limited report, 75.85% of USDT backing is formed by cash and equivalents, with commercial paper accounting for 65.39% of this category. Long claimed any potential fallout in markets “will have been entirely avoidable” if Tether had invested more in Treasury Bills — only 2.94% out of its total cash, cash equivalents, other short-term deposits and commercial paper — rather than assets with seemingly higher risk.
Tether, for now, is an integral part of the crypto ecosystem. So it’s only natural we should correct when news like this comes out. Stablecoins are still a young industry — and I expect we’ll have a lot of positive developments there over coming years. Tether is a bit of a rogue operator. But there are plenty of stablecoins issued by more reputable companies like Coinbase.
So no, I don’t think Elon moved the markets by himself. There were many other factors at play — AND we had just gone up more than 10x in a year. That’s a massive move. I don’t think the crypto market is permanently damaged by this correction either. This is an insane market and almost every asset class is trading strangely.
The bull case for crypto, especially bitcoin, remains solid. I suspect the next 10 years will be even more extreme, from a financial point of view, than the last 10. Hard assets such as gold and bitcoin should continue to perform strongly.