The cryptocurrency market experienced an extraordinary week of turbulence in October 2018 as Tether (USDT), the industry’s dominant stablecoin, dramatically lost its one-dollar peg, trading as low as $0.85 before partially recovering to around $0.98 by October 22. The depegging event sent shockwaves through the crypto ecosystem but ultimately triggered a “flight to quality” rally that pushed Bitcoin and major altcoins higher.
TL;DR
- Tether (USDT) lost its $1 peg on October 15, 2018, crashing to $0.85
- By October 22, USDT partially recovered to approximately $0.98 but remained below peg
- Bitcoin traded at roughly $6,487 on CoinMarketCap, with significant price discrepancies across exchanges
- Kraken absorbed $26 million in USDT inflows over two weeks as investors rushed to convert to dollars
- The broader crypto market gained 3-4% during the week despite the stablecoin crisis
The Tether Crisis Unfolds
The troubles began on October 15 when Tether’s price collapsed from its customary $1.00 level to as low as $0.85, driven by rumors about Bitfinex’s solvency and banking partnerships. Bitfinex, which is closely related to Tether, had suspended fiat deposits, fueling speculation about the relationship between the exchange and the stablecoin issuer.
By October 22, while Tether had largely stabilized, it remained below its peg at approximately $0.98. The discrepancy created unusual market dynamics across exchanges. On Coinbase, where trading occurred in US dollars, Bitcoin was priced at roughly $6,400. On Binance, which used Tether, the same Bitcoin cost around $6,480. And on Bitfinex, which still internally valued Tether at $1.00, Bitcoin appeared to trade at roughly $6,550.
Kraken Becomes the USDT Exit Door
As the crisis deepened, investors sought ways to convert their Tether holdings back into US dollars. Kraken emerged as a critical gateway, absorbing approximately $26 million in USDT over a two-week period. The exchange’s USDT holdings surged from $21.6 million to $47.8 million, making Kraken the eighth largest holder of Tether among all exchanges.
However, this influx was not a vote of confidence in Tether. Investors were specifically moving their USDT to Kraken because it was one of the few exchanges that allowed direct conversion to US dollars. The movement represented a mass exit from the troubled stablecoin rather than accumulation.
Bright Spots in the Broader Market
Despite the Tether turmoil, the cryptocurrency market demonstrated surprising resilience. Major crypto indices gained 2-4% during the week, outperforming virtually every traditional asset class. The S&P 500 and Nasdaq ended the week largely unchanged, while gold rose just 1% and oil fell 4%.
The rally was partly driven by positive fundamental developments that were overshadowed by the Tether saga. The SEC had begun working constructively with ICO projects, Fidelity announced its entry into the cryptocurrency custody market, and BitGo secured a $43 million investment from Goldman Sachs and other major investors. These developments suggested growing institutional acceptance of digital assets even as the market grappled with the stablecoin crisis.
New Stablecoins Emerge From the Wreckage
The Tether depegging accelerated the development and adoption of alternative stablecoins. Paxos Standard (PAX) and the Gemini Dollar (GUSD), both regulated and backed by US dollars held in FDIC-insured banks, gained traction as traders sought safer alternatives. Meanwhile, decentralized options like DAI offered a fundamentally different approach to price stability without relying on a single issuer.
On October 22, 2018, CoinMarketCap data showed Bitcoin at $6,487.16 with a market cap of approximately $112.5 billion, Ethereum at $204.04 with a $21 billion market cap, and XRP holding strong at $0.4531. The total cryptocurrency market remained firmly in bear market territory but showed signs of stabilization following the dramatic events of the week.
Why This Matters
The October 2018 Tether crisis was one of the first major stress tests for stablecoins, which were still a relatively new concept at the time. It exposed the systemic risks of relying on a single, opaque stablecoin issuer and highlighted the critical importance of transparency in crypto markets. The event ultimately catalyzed the development of a more diverse stablecoin ecosystem, with regulated and decentralized alternatives emerging to address the vulnerabilities that Tether’s depegging revealed. The market’s ability to rally despite the crisis also demonstrated an important truth: crypto was beginning to decouple from the fortunes of any single intermediary.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments carry significant risk. Always conduct your own research before making investment decisions.
USDT at $0.85 and people still kept using it. the copium was unreal
USDT at $0.85 and people still held because there was nowhere else to go. DAI was tiny and USDC hadnt launched yet. eat the 15% loss or pray
Volker B. eating a 15% loss on USDT was actually the rational move. DAI was at 4% premium and USDC had no liquidity. exits were limited
what was the alternative though? USDC barely existed, GUSD was tiny. USDT had like 95% stablecoin market share back then
USDT was 95% of the stablecoin market because there was literally no alternative with liquidity. you couldnt just swap to USDC on kraken in 2018
usdt at $0.85 and people still used it because there was literally no alternative. usdc barely existed in 2018
tether_truth USDC launched October 2018 literally during the depeg. timing could not have been better for Circle. they built the alternative while Tether was melting
Kraken absorbing $26 million in USDT conversion requests was the real signal here. Everyone wanted out of tether and into actual dollars.
kraken was the only major exchange with a USDT/USD pair in 2018. the $26M inflow was basically the entire market trying to exit tether through one door
that $26m inflow to kraken in two weeks was the entire market trying to exit tether through one door. bank run vibes
stablecoin_og Kraken was the only USD on-ramp for USDT holders and the order book had like $4M depth. $26M tried to get through. slippage must have been brutal
$26M in USDT inflows to kraken in two weeks. that was the bank run moment. everyone racing for the exit at the same time
october 2018 showed why stablecoins are necessary but also dangerous. when tether broke, everything panicked
USDT dropping to $0.85 in October 2018 was brutal but the flight to quality rally that followed was unexpected.
Kraken absorbing $26M in USDT inflows over two weeks shows where the money went when investors fled from depegged stablecoins.
The market gained 3-4% despite the stablecoin crisis – that’s how strong the FOMO was in late 2018.