The money printer has gone silent.
The parabolic growth in the market capitalization of Stablecoin Giant Tether (USDT) suddenly stalled in late May, just as Bitcoin price hit its all-time highs. With Bitcoin trading in a range of around $ 30,000 to $ 40,000, a new round of talks has since been circulating that links the two events and reflects an old assumption: Has Tether stopped driving the price of Bitcoin soaring?
USDT market capitalization vs. Bitcoin price
However, according to analysts and market participants speaking to CoinDesk, the sudden pause in tether printing has instead shown that the dominance of the world’s most traded cryptocurrency is threatened by three unprecedented challenges that combine in a perfect storm to shake the stablecoin : Trouble in its largest geographic market has made it difficult for traders there to buy USDT with Fiat. One of USDT’s most promising competitors appears to be gaining market share. And regulatory pressure is increasing worldwide.
A Tether executive admitted that the demand for USDT has fallen, but argued that the trend is not limited to the token alone.
“Demand for Tether is rising and flowing and has been impacted by lower demand in recent weeks,” said Paolo Ardoino, Chief Technology Officer at Tether, in a written response via a spokesman, noting that USDT is not the only stablecoin which has been reduced in demand.
China’s crackdown on crypto
The crypto crackdown in China – in both Bitcoin mining and Bitcoin trading – has hurt Bitcoin prices, which have now fallen 52% from their all-time high of $ 64,928.14 in April to around $ 31,000.
But another victim of China’s renewed crypto crackdown is USDT, the stablecoin, whose success is largely due to its dominance among Chinese traders and investors. They routinely use the dollar-pegged stablecoin to enter the crypto markets through OTC brokers as fiat-to-crypto trading or buying digital assets with government-issued cash remains illegal in the country.
Last month, Chinese police arrested more than 1,000 people on money laundering allegations, claiming they used crypto to help them circumvent the law. Such measures against OTC traders could explain why USDT’s growth in China has slowed significantly.
“It is extremely difficult [go] Ascent and descent in China [to crypto,]”Said Annabelle Huang, partner at Hong Kong-based crypto asset manager Amber Group. “Many of the OTC traders have stopped doing business.”
With Bitcoin struggling to move beyond its current range of $ 30,000 to $ 35,000, there is also no incentive for new cash in China to enter the crypto market.
“Tether’s market in Asia is mostly through OTC dealers, and with less cash flowing into the market, there is less demand for Tether,” said Rachel Lin, former vice president and founding partner of Singapore-based crypto investment firm Matrixport.
Hong Kong-based crypto lender Babel recently told CoinDesk that it had cut its USDT deposit rates because of weak demand for the stablecoin.
However, a spokesman for Babel did not want to say why demand has recently decreased.
It appears that China’s crackdown on crypto-related money laundering activities continues. A report by the South China Morning Post late Wednesday said that Hong Kong Customs closed a local money laundering syndicate that is using crypto – particularly USDT – to process about $ 155 million worth of illicit funds, the first This kind of raid on the city.
The Hong Kong news “could put pressure on all Singapore and Hong Kong offices to reconsider trading in USDT / USD”. [pairs]”Said Dan Burke, Managing Director of Institutional Sales in Asia-Pacific at BitGo, a digital asset custodian.
USDC on the rise
While demand for USDT seems to have dried up, the rising star of the stablecoin market is increasingly USDC, another dollar-pegged stablecoin operated by crypto financial services company Circle.
Boston-based Circle recently announced its plan to go public with a special purpose vehicle (SPAC) shortly after it announced its goal of expanding USDC to no more than 10 other blockchains outside of Ethereum.
Tron, a blockchain led by crypto influencer Justin Sun, is one of the blockchains that recently started supporting USDC, and according to Circle’s website; one of the goals is to “enable” [USDC] Growth in Asia and worldwide. “
As it stands, there is more USDT on Tron than on Ethereum, as traders in Asia prefer blockchains that enable faster and cheaper transactions. That makes USDC’s accession to Tron a more tempting proposition.
“I think USDC has a chance to compete against Tether in the stablecoin market in Asia,” Sun told CoinDesk. “I have a feeling that the stablecoin market in Asia currently needs a diversified infrastructure and customers in Asia are looking for more stablecoin options.”
According to Lin, unlike USDT, which relies heavily on the OTC channel, USDC can be easily bought by investors in Asia thanks to the staff-intensive customer service provided by Circle, the company that runs the stablecoin business.
“Doing business with USDC is very upfront,” Lin said. “They usually have a manager who will work with you via email once you’ve submitted the required documents.”
It may be too early to see if USDC can beat USDT’s dominance in Asia, but USDC is already winning in another glowing crypto sector: decentralized funding.
According to data from Glassnode, almost 50% of USDC supply is currently tied to smart contracts, compared to Tether’s 20%.
The percentage of supply in smart contracts of USDT vs. USDC
“USDC is increasingly being used for on-chain and payment use cases that continue to grow,” said Ryan Watkins, research analyst at Messari. “While USDT is primarily used for inter-exchange settlement and margin on derivatives, use cases have retreated as the market settles down.”
Vulnerability of crypto bears vs. tether
One of the persistent problems facing the USDT – its reputation within the crypto community – is a third obstacle faced by the world’s largest stablecoin by asset size.
“The market is steeped in bearish sentiment and traders are looking for a reason,” said Noelle Acheson, head of market insights at crypto prime broker Genesis Global Trading. “It’s FUD (Fear, Uncertainty, and Doubt) season and Tether’s vulnerabilities are almost always part of that conversation.”
According to Acheson, the market is “hungry” for explanations as to why price is so “listless” and USDT is a perfect target as long as the company behind the dollar-pegged stablecoin keeps its reserves in the dark. (Genesis is a subsidiary of the Digital Currency Group, which also owns CoinDesk.)
More recently, regulators and governments around the world have been asking more questions about USDT and other stablecoins. Testimony before the United States. House Financial Services Committee Jerome Powell asked a question from Rep. Anthony Gonzalez (R-OH) on Wednesday about Tether’s assets, almost half of which, according to its May release, were unspecified commercial papers.
“Commercial papers are short-term, overnight corporate bonds, and most of the time they’re investment grade, most of the time they’re very liquid, all is well,” said Powell. But in the face of crises, “the market just disappears. And then people want their money. Quite simply: These are economic activities that are very similar to bank deposits and money market funds and which must be regulated in a similar way. “
Part of this bearish sentiment, amid regulatory concerns, is reflected in the growth of the USDC / USDT trading pair on the Binance exchange. The trading pair is currently the most active in the spot market, which includes the USDC stablecoin. In other words, Binance’s traders are trading between USDC and USDT, possibly for a bet that the price of USDT will go down, or at least because they will find more utility in USDC
Some traders could “borrow USDT and exchange for USDC,” said Hassan Bassiri, vice president of Los Angeles-based wealth management firm Arca. “You know USDC is worth $ 1, so borrow USDT by trading for USDC. If USDT is not fully funded, you can use USDC to buy back the USDT for less than $ 1. “
One counter-narrative for the increased trading volume in the USDC / USDT pair on Binance is, of course, that many small-cap tokens available on Binance only have trading pairs with USDT, said Lin, the former VP of Matrixport.
In fact, AXS, Axie Infinity’s latest hot token, which hit a record high on Wednesday, is available on Binance with trading pairs with USDT, Binance USD (BUSD) and BNB, according to CoinGecko, while there are almost no AXS / USDC trading pairs at central Exchanges available. The USDC / BUSD trading pair is another popular trading pair on Binance with USDC; in terms of trading volume in the last 24 hours, it is just behind USDC / USDT, BTC / USDC and ETH / USDC.
When traders short USDT, they do so in response to FUD, Bassiri said. However, he rejected concerns about the stablecoin.
“USDT is fine [and has] was always good, ”he said.