One of the key factors could be a greater level of liquidity in the BTC-USDT pair. Among other reasons, Kaiko highlights the regulatory scenario regarding the US fiat currency.
A recent study reveals that the current volatility of the Bitcoin market is greater concerning the national fiat currency of the USA, the US dollar (USD), than with respect to the stablecoin Tether (USDT). The firm Kaiko was in charge of conducting the study, whose title is “Tether vs. USD, is a dollar a dollar when it comes to trading?”
In this report, which was published last April 30th, the analysis firm Kaiko concludes that, in a period of 1 year, there were greater fluctuations in the intraday price movements in the BTC/USD pair than in the BTC-USDT pair. According to their estimates, Kaiko analyzed data from exchanges such as Coinbase, Binance, Okex, and Bitfinex.
In the first period over the past year, the study found that the BTC/USDT closing prices were slightly less volatile (between 92% and 98%) than their BTC/USD counterparts. After that, there was a period in which both pairs had an almost identical behavior. Finally, the disparity returned at the beginning of 2020, when the volatility against USDT was greater. That moment of greater volatility of Tether coincided with the period of market decline, between March and April of this year.
Kaiko estimates that one of the possible key factors is liquidity. In their study, they found a trading volume of the BTC/USDT pair that exceeded USD 160 million. In its BTC/USD counterpart, that trading volume was about USD 21 million. In other words, it was 7 times higher with Tether than with US dollars.
The analysis firm says in the study titled “Tether vs. USD, is a dollar a dollar when it comes to trading?” that:
“The analysis of daily volumes shows that the trading involving the stablecoin was at least 2 times more liquid than the fiat currency at all times, which is a sign of solidity.”
One of the other reasons that the study explores is based on structural differences related to different regulatory regimes between fiat-based or stablecoin-based businesses.
Stablecoins and Bitcoin’s Volatility
Kaiko based its study on data obtained between April 1st, 2019, and March 31st, 2020. The end of this period coincides precisely with the month of the highest volatility of Bitcoin in the past 6 years, according to data from Blockforce Capital.
Stablecoins benefited from this situation since this type of crypto assets is designed to maintain a stable value concerning another asset. In the case of Tether, among others, the asset parity is anchored to the US dollar.
It was precisely last March when the market crisis due to the coronavirus pandemic led Bitcoin to drop to USD 4,000. After March 12th, stablecoins reached a new capitalization ceiling, according to data from Coin Metrics.
By Alexander Salazar