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On-chain researcher SMQKE believes XRP and the Ripple stablecoin RLUSD could become dominant when there’s an end to what he calls the Bitcoin and Ethereum’s “Tether bubble.”
In a recent post, SMQKE raised concerns about the stability of Bitcoin and Ethereum, suggesting that both cryptocurrencies are at risk due to their heavy reliance on Tether (USDT) liquidity.
Notably, The Crypto Basic confirmed yesterday that Tether recently minted $3 billion USD in just one week and has continued to mint more. Just last week, the stablecoin issuer also minted $1 billion on Ethereum.
Tether Allegedly “Feeding the Bitcoin Bubble”
According to SMQKE, the continuous minting of USDT, which he alleges is not always fully backed by reserves, could be feeding a speculative bubble that inflates the prices of Bitcoin and Ethereum. He warns that this could eventually lead to a significant market correction.
The pundit based his statement on research, including a 2020 Bank of France working paper titled “Stablecoins: A Brave New World?” and a Sciendo research paper on blockchain technology.
These studies highlight the correlation between the increase in Tether’s liquidity and the rise in Bitcoin’s price, suggesting that Tether’s issuance has played a role in the current valuation of Bitcoin.
Particularly, the Bank of France research pointed to how the influx of newly minted USDT has consistently coincided with upward trends in Bitcoin’s market price. This has raised suspicions that Tether’s market activities might be artificially boosting the value of Bitcoin.
A possible factor behind this is the increase in purchasing power among retail and institutional investors on the back of more USDT minting. However, SMQKE suggests this trend could potentially set the stage for a drastic correction once the market realizes the true extent of Tether’s backing.
He believes that when the market discovers Tether’s alleged shortcomings, both Bitcoin and Ethereum could face devastating losses. This would likely shake investor confidence in the broader cryptocurrency market. Tether has been at the center of controversy, recently targeted by a billboard ad alleging corruption and audit refusal.
XRP: A More Stable Alternative?
In contrast to what he believes is the Bitcoin bubble, SMQKE points to XRP as a more stable alternative that could thrive in the aftermath of a market correction.
According to the researcher, XRP is not entangled in the alleged speculative activities surrounding Bitcoin and Ethereum. Instead, it has demonstrated greater stability, particularly in its use case for cross-border transactions and its focus on regulatory compliance.
Adding to XRP’s appeal is Ripple’s upcoming stablecoin, RLUSD, set to launch on the XRP Ledger (XRPL) and Ethereum. The payments firm recently opened private beta testing for RLUSD. They confirmed plans to secure compliance with the necessary laws before launch.
Unlike Tether, which has faced criticism for its lack of transparency and regulatory challenges, Ripple’s stablecoin is expected to comply with stringent regulations, ensuring that it is fully backed and transparent. Notably, the recently introduced MiCA legislation does not cover USDT.
SMQKE believes the introduction of a compliant RLUSD in addition to USDT’s regulatory concerns could significantly reduce Tether’s market dominance, as investors may prefer a regulated stablecoin that offers greater security and compliance with laws. He believes this may be beneficial for XRP.