Major digital currencies edged higher on Monday as tether, a controversial token designed to be pegged to the U.S. dollar, fell more than 2 percent.
Tether is what is known in the industry as a “stablecoin,” a cryptocurrency pegged to a government-backed currency to avoid the volatility common in cryptocurrencies like bitcoin. The idea has also been put into practice by Goldman Sachs-backed firm Circle.
Any significant swing in the price of tether should come as a surprise to investors as the token is meant to have a static exchange rate of 1 tether token to $ 1.
The token is used to buy other cryptocurrencies like bitcoin. There have been fears that tether was used to manipulate the price of bitcoin and other cryptocurrencies.
“If the perception that tether can hold a stable value is called into question, traders who are holding USDT are most likely to shift their funds into other cryptos in order to hold their value,” Mati Greenspan, senior market analyst at eToro, told CNBC in an email.
Major cryptocurrency prices are still well off their record highs, with bitcoin off by more than 66 percent, ether down more than 84 percent and XRP down 88 percent.