Jul 02, 2020 11:40 PM | Joseph Young


Tether (USDT) has been trading at a discount throughout June. A pseudonymous options trader known as Theta Seek says this typically indicates weaker market sentiment. It could mean that there are currently fewer Chinese buyers in the Bitcoin market.

Bitcoin has rejected the $9,700 to $10,000 range repeatedly in the past two months, reacting to relatively high selling pressure. Data from ByteTree shows miners have been selling most of what they mine throughout the past week. Since June 24, Bitcoin miners have mined 6,506 BTC and sold 6.267, holding just 239 BTC. 

A confluence of uncertainty in the global economy, consistent selling pressure from miners, and less demand for Tether could make an argument for frail Bitcoin market sentiment.

Theta Seek wrote:

“ICYMI, USDT has been trading at a discount for the past few days. I usually take this as a form of weak market sentiment. In this case, I think the market is wrong.”

Tether is a stablecoin whose value is pegged to that of the U.S. dollar. USDT is often used as an alternative to fiat currencies on trading platforms that do not support fiat-to-crypto trading pairs.

The dominant stablecoin, which has a market capitalization of $9.2 billion and is the third largest cryptocurrency on paper, is used primarily by Chinese traders. A report by Diar found that the majority of Tether’s on-chain volume came from Chinese investors in the second half of 2019.

Cryptocurrency trading in China remains prohibited in large part. But, users are able to trade with only a few exchanges like Huobi operating locally. A Bloomberg report said just 20% of Huobi’s revenues come from retail investors from China.

Possibly due to its strong presence in a concentrated market, Huobi vice president Ciara Sun said the company has the largest amount of digital assets among top exchanges. Sun said:

“Huobi's digital assets amount to USD $5.427B (407.5K BTC+ 4.8M ETH + 620M USDT), placing us as [one of] the largest exchanges in terms of user's assets. Our strengths in risk control, safety, and liquidity are what guarantees this leading position.”

According to Bloomberg, Chainalysis said in October 2019 that 99% of Bitcoin spot trades in China involved Tether as over-the-counter (OTC) trading activity increased rapidly. At the time, Chinalysis chief economist Philip Gradwell said:

“People should be paying more attention to the price formation on the large Asian exchanges. There’s probably going to be a large amount of liquidity there that, for example, these OTC brokers will be providing. It can move very fast.”

The decline in the price of Tether could indicate that there are fewer Bitcoin buyers from China, given that Chinese users account for the majority of USDT’s trading activity.

But the drop in the value of Tether can also be read the opposite way. When investors in the crypto market seek safety, they typically turn to stablecoins. As such, Tether can be considered capital on the sidelines, held by investors waiting to re-enter the market. When they re-enter, the value of Tether can drop as investors sell USDT to purchase Bitcoin or other crypto assets.

The price and premium of Tether is one of many types of data that analysts consider when evaluating the price trend of Bitcoin. Depending on various technical and macro factors, the data from Tether can be used to support arguments for both an upward price movement or a pullback.

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