Late last night, the Wall Street Journal reported that the U.S. Treasury has considered imposing sanctions on Tether, the issuer of stablecoin USDT.

This criminal investigation is led by the Manhattan U.S. Attorney's Office, focusing on whether USDT was used by third parties to fund illegal activities such as drug trafficking, terrorism, and hacking, or money laundering-related proceeds.

At the same time, the U.S. Treasury is considering imposing sanctions on Tether because USDT is widely used by individuals and groups sanctioned by the U.S., including the terrorist organization Hamas and Russian arms dealers.

Once the news broke, Bitcoin dropped directly from 68,000 to 66,000, a decrease of 2,000 points. Soon, Tether's CEO responded to the FUD news by stating, 'As we told the Wall Street Journal, there is no indication that Tether is under investigation; the Wall Street Journal is just repeating old news.'

However, within an hour, Bitcoin rebounded back to 68,000. Data shows that during this period, the total liquidation across the network was $127 million, with long positions liquidated at $109 million and short positions liquidated at $18.2259 million.

The risk of USDT crashing is always mentioned.

Bad news travels fast. Especially in the crypto space driven by fear (FOMO), USDT, as the most widely used entry-level virtual asset, will inevitably cause a 'major earthquake' in the crypto world once it 'collapses.' You should know that in the crypto world, who doesn't hold thousands or tens of thousands of USDT?

In March 2023, during the USDC de-pegging incident, panic sellers in the crypto community sold off USDC in large quantities, and some well-known crypto institutions and market makers (IOSG, Jump, etc.) took emergency precautions. Major virtual currency exchanges also urgently suspended USDC exchange channels...

Subsequently, on-chain pressure surged. Due to the severe dependence of the DeFi ecosystem on USDC, this de-pegging caused severe skewing of liquidity pools, triggering de-pegging of stablecoins such as DAI and FRAX, as well as subsequent on-chain liquidations.

On October 4, while we were still enjoying the National Day holiday, Bloomberg released news about 'Coinbase will delist stablecoins that do not comply with EU regulations.'

The news indicates that with the full implementation of the EU's MiCA legislation in December, Coinbase, in order to comply, will restrict services related to stablecoins that do not meet MiCA requirements for EEA users after December 30, 2024.

Simply put, after December 30, Coinbase will delist all stablecoins that do not comply with MiCA regulations, but only in the EU.

We also know that, so far, for various reasons, Tether (the issuer of USDT) has not yet obtained a stablecoin issuance license from the EU. This means that if Tether cannot meet the MiCA requirements and obtain the stablecoin issuer's license within the remaining three months, Coinbase will delist USDT-related services in the EU.

However, as news travels, it turns into Coinbase planning to delist USDT by the end of the year.

However, the market is always like this, with all kinds of news flying around. In the media era obsessed with traffic, truth and falsehood are no longer the basic standards for information released by the media, adding a lot of FOMO/FUD to the market. Therefore, this raises higher demands for investors' discernment of news.

Will Tether's USDT really crash? Let's take a look at USDT.

Since its establishment in 2014, Tether has launched the world's first stablecoin, connecting traditional currencies with the rapidly growing digital asset market and fundamentally transforming financial markets.

Tether has over 350 million users globally and holds a large amount of U.S. Treasury bonds. As of the second quarter of 2024, Tether directly and indirectly holds over $97 billion in U.S. Treasury bonds, making it one of the top 20 buyers of U.S. Treasuries, surpassing holdings from countries like Germany, the United Arab Emirates, and Australia.

This means that when you exchange RMB for USDT, Tether buys U.S. Treasury bonds with USDT, and you enjoy the interest. In fact, you, I, and everyone in the crypto space holding USDT indirectly hold U.S. Treasury bonds. Besides Treasuries, Tether's asset reserves also include Bitcoin, reverse repos, money market funds, and U.S. dollar cash deposits.

So, does USDT have risks? I believe it does, for example, regulatory risks.

Tether's vision for the next 10 years states

Although Tether has made significant progress, there are still serious issues to address, particularly in terms of regulatory transparency, scalability, and the actual utility of digital currencies.

Tether is actively seeking solutions in these areas, including advanced blockchain integration and a new line of stablecoin products designed to meet the needs of the evolving financial ecosystem.

This means that there is uncertainty in how governments regulate USDT. For instance, the European Union has stated that after December 30, Coinbase will delist all stablecoins that do not comply with MiCA regulations, which includes USDT.

The legal position of Tether (USDT) in mainland China is clearly prohibited.

Chinese law takes a cautious and strict attitude towards virtual currencies, including Tether (USDT), clearly prohibiting virtual currencies from circulating as currency in the market and strictly restricting and regulating related business activities.

In mainland China, holding and using USDT is not illegal, but its use is subject to regulatory restrictions. Although individuals can hold USDT, they need to pay attention to compliance risks in applications to avoid involvement in illegal activities such as money laundering. Additionally, financial institutions and non-bank payment agencies are not allowed to provide services for virtual currency-related business activities, including but not limited to account opening, fund transfers, and clearing and settlement services.

Another risk is centralization.

Anything centralized carries risk. After all, the issuer of USDT, Tether, is not the Federal Reserve; it is a company, and every company has the risk of going bankrupt.

However, this risk is minimal. According to Tether's parent company's financial report, Tether achieved a net profit of $4.5 billion in the first quarter of 2024, and the Q2 report showed a net operating profit of $1.3 billion, with a total of $4.8 billion earned in the first half of 2024, a historical high.

This means that it is a very profitable company. Although USDT is not the Federal Reserve, it can be compared to the Federal Reserve in the crypto space, with a market cap of $120 billion, ranking third, only behind Ethereum.

Theoretically, Tether can completely manipulate the market. As long as it keeps issuing USDT, a large amount of USDT will flow into the market, thereby driving up coin prices.

In fact, behind every major bull market, there is a shadow of a large issuance of USDT. USDT is issued in units of 1 billion, and this year it has been issued five times on Ethereum and TRON, totaling 10 billion dollars.

Respectively

Ethereum: 9.16 billion, 8.21 billion, 8.13 billion, 5.21 billion, 2.21 billion

TRON: 8.20 billion, 6.15 billion, 5.17 billion, 4.4 billion, 1.29 billion

With a 70% strong market share, Tether has created a network effect, becoming a super money printer in the crypto market, with a negligible risk of bankruptcy.

If one day the risk of USDT crashing occurs, Bitcoin will definitely benefit, as funds will flow into Bitcoin for safe haven. Therefore, holding a large amount of USDT for the long term is certainly unwise.

USDT and other stablecoins can only serve as a temporary transition for us in the crypto space. After all, holding spot zero-leverage Bitcoin is the only way to avoid risk.