Jim Cramer warns “Tether (USDT) is the Achilles heel of crypto” as USDC finds footing

• Jim Cramer believes Tether may bring risk exposure to the crypto industry.
• USDC slowly emerges as a worthy replacement.

Tether has over the past few years maintained its standing as the most popular and highest valued stablecoin in the industry.  However, CNBC’s Jim Cramer believes that Tether brings risk exposure to the crypto industry, describing the stablecoin as the “Achilles heel of crypto.” 

Tether, which is the giant stablecoin, could be basically the Achilles heel of the entire Bitcoin operation, which is very worrisome because we don’t know what they own.

The stablecoin is linked to the US Dollar on a 1:1 ratio, backed by reserves. The reserves include traditional currencies and cash equivalents. This will later include receivables from loans by the Tether issuing company and other assets. Many concerns have recently been expressed against Tether while USDC slowly emerges as a worthy replacement. 

Tether recently experienced challenges with the authorities. According to Cramer, it should be a concern that Tether was kicked out of New York by the New York Attorney General (NYAG). 

Then I read that New York, that AG settlement, they’ve been basically kicked out of Wall Street, of New York. To me Tim, that’s highly unusual, and you went to law school with me. If New York decides you can’t do business here, shouldn’t we be more worried than most people are about this?

USDC may take over from Tether

Last month, Eric Rosengren, the president of the Reserves Bank of Boston mentioned that Tether poses a huge risk to the financial system. He disclosed that in a period of mass-sell off, a large proportion of Tether’s assets may not return yield as stated, especially in a period where a lot of holders exchange their USDT for US Dollar in a crypto version of “bank-run”. 

The reason I talked about Tether and stablecoins is if you look at their portfolio, it basically looks like a portfolio of a prime money market fund but may be riskier.

As part of its settlement with the NYAG, Tether released its first report this year. Interestingly, it was observed that 76 percent of its reserves consisted of cash and cash equivalent. However, it was observed that only 4 percent of the 76 percent was cash. 

In any case, USDC has been tipped to take over from Tether as it stands as the best candidate. A recent reserve account report by an accounting firm Grant Thornton commented that the US Dollar-denominated assets in the segregated accounts accurately reflect the $22 billion USDC in circulation. 

The parent company, The Circle, is also undertaking several partnership programs with the recent one coming from Mastercard which will integrate crypto and legacy payment rails. 

Cramer also expressed a strong interest in Ethereum, revealing he holds Ether and will stick to his position, however, he does not plan to add more.