Tether features the greatest offer at exchange houses for the trade of stablecoins. The trade of BTC/USDT moved about US $3.5 million in the last few days
Since the last bullish rally in late 2017, the correlation between the issuance of Tether (USDT) and the fluctuations in the prices of Bitcoin (BTC) has generated debate in the community. With BTC being quoted above US $9,000, it is time to analyze how influential Tether has been during the last price increase.
Tether is a stablecoin (or token anchored to fiat) owned by Tether Limited, emerged in late 2014. It aims to provide coverage for traders during highly volatile trading conditions. The creators of this stablecoin assert that it has a 1:1 parity with US dollar, since the total of circulating Tether would be supported by an equivalent reserve. This includes fiduciary currency, as well as other assets and accounts receivable on loans made by Tether to third parties, as can be read on their webpage.
It has a market capitalization of US $3.4 thousand million, according to Messari data, which represents more than 80% of the total capitalization among main stablecoins such as USDC, TUSD, DAI, GUSD and PAX. It also has a daily trading volume that surpasses the amount of US $22 thousand million.
Its reach is so … that in May USDT’s network showed more transactions per day than the 99.97% of the market, with the exception of BTC, XRP, ETH, EOS y TRX. In the same way, its transaction volume surpassed the main 50 cryptocurrencies, with the exception of BTC, ETH and BCH.
Issuance of Tether as a Catalyzer
The impacts of the issuance of Tether on the prices of Bitcoin have been an arid topic within the ecosystem, especially for the lack of clarity shown by the states of USDT and its close relationship with Bitfinex exchange house. In fact, Bitfinex and Tether Ltd. have the same owners, the same banking relationship and the total of USDT transit is issued through the said exchange house. This made the New York Prosecutor sue Bitfinex and Tether for presumably hiding a loss of US $850 million.
When the market’s volatility is more evident, traders seek refuge in currencies such as the US dollar, and the issuance of Tether would come to meet this demand. Having participation that reaches 72.5% (about 585,917 Bitcoins) of the total BTC trading volume in the last days, it can be said that USDT is connected to this market, for which its issuance rate greatly influences the valuation of other crypto assets.
Current conditions provide an opportunity similar to that of central banks for those in charge of issuing Tether. The participation of USDT in Bitcoin volumes is such that misusing the issuance of this stablecoin could end in a bullish scenario between BTC y USDT, this is, similar to that experienced in countries such as Venezuela regarding the relationship between the dollar and the bolivar.
In other words, as Tether Ltd has a degree of power over the volumes of Bitcoin, during a bullish rally this company could start flooding the USDT market disproportionately to make Bitcoin appear more valuable than Tether. In theory, if circulating Tether grows to huge proportions surpassing the demand, more USDT will be needed to buy the same amount of bitcoins (creating an artificial inflation in USDT), which results in appreciation of BTC and a increase in its price. In bearish circumstances, a reduction of circulating Tether will result in an appreciation of USDT, since these will be scarcer among investors. Something similar occurs when a given token is burned or shares are repurchased.
Correlation between Tether and Bitcoin
Bitcoin’s Price and the issuance of Tether have been closely related. Since 2018, the circulating offer of USDT (market capitalization) has shown moves that anticipate Bitcoin’s important fluctuations.
On August 16th last year, circulating Tether (green line) continued increasing to USDT 2.8 thousand million. Days later BTC’s price (blue line) broke the US $6,400 to reach the cash value of US $7,200, a steep bullish move. The correlation continued in October, when the circulation of the stablecoin was reduced in about 50% to USDT 2 thousand million and a month later Bitcoin broke below US $6,000 up to its annual minimums around d the US $3,200.
In early 2019 the correlation was much more pronounced. USDT reached its historical maximums as the total circulation grows up to 3.5 thousand million Tethers, which has been supported by Bitcoin’s price increases starting with US $3,800 in mid-February. Having the main currency per market capitalization around US $9,000 and sky-high circulating USDT, the performance of the price will become a litmus test to verify the degree of correlation of these assets.
By Willmen Blanco
