Just a year after China put a blanket ban on local fiat ramps for crypto exchanges, traders in the nation continue to keep the market going by using tether (USDT), the stablecoin backed by the US dollar.
Alexander Pack, co-founder of Dragonfly Capital Partners stated:
“Crypto trading companies do not have access to banking services in China, but they are still thriving.”
Generally, traders in countries where crypto exchanges have banking restrictions operate with stable coins. According to data from CoinMarketCap, USDT activity hit an all-time high this month with a global market cap of over $ 4 billion. According to Bloomberg, USDT is used in 40 to 80% of all transactions on both Binance and Huobi, with Binance now offering loans based on Tether collateral.
However, due to the preference of over-the-counter transactions by tether investors, these official exchange volumes hardly paint a perfect picture of the actual volumes.
CoinMetrics recently released data spanning a full year of transactions and found an annual peak in activity as of August 7th with 78,100 active wallets in USDT and nearly 21,300 for USDTe, its Ethereum-based counterpart. According to the ETH gas station, Tether recently paid nearly $ 261,000 in Ethereum mining fees to run the secondary version of the stablecoin. Additionally, an additional stablecoin issued by Tether is on the horizon, supported by the Chinese yuan.
With this in mind, USDT brokers created a lucrative niche in 2019, especially brokers that offer fiat liquidity options.
A Chinese investor said the following, citing the anonymity condition of a crypto release:
“Tether has really good liquidity in China. One of the main use cases is a fiat on and off ramp for crypto trading. I’ve also seen some people use Tether for legitimate business use cases like cross-border trading. “
At the other end of the spectrum, two different Asian OTC traders, who sought anonymity to protect their businesses, shared the same release that a significant portion of their business comes from Chinese clients using USDT to get assets out of China’s tight capital controls.
A Hong Kong based trader stated:
“This has always been an integral part of the OTC flows in crypto.”
For example, the merchant’s OTC counter generated $ 45 million in revenue on Aug. 6, more than 50% of which was from USDT transactions.
A Chinese tether bull market?
Several experts believe the sudden surge in tether volume could be caused by the general enthusiasm of the crypto community for a possible bull market return.
A US dealer stated:
“Tether is the easiest way to keep a relatively stable volume of value on an exchange that doesn’t accept dollars. It’s much more about it [USDT] Network effect as any technology, infrastructure, or any other benefit. “
In short, OTC traders are offering USDT the Fiat On-Ramps. However, this is still a gray market within China’s borders. Chinese traders use USDT to liquidate their broader asset portfolios on global exchanges such as Binance, OkCoin or Huobi. These moves are affecting the Bitcoin market as traders and exchanges choose to use the OG cryptocurrency for fiat liquidity beyond OTC. Kraken, Bitfinex, and other exchanges offer these Bitcoin trading pairs.
However, Hong Kong anonymous trading suggested that this is not the only way Chinese traders are leveraging, affecting broader markets:
“There are billions of dollars coming from China that have nothing to do with capital controls.”
For example, FTX, an Antigua-based crypto futures market that launched back in April, enables a daily volume of $ 50 to $ 300 million, according to CEO Sam Bankman-Fried. Of these 10,000 FTX users, most are based in China and served from an OTC office in Hong Kong.
The noticeable stability of Tether in 2019 is truly amazing considering that the issuing company has admitted that the stablecoin is not always backed one-to-one by the USD. In addition, the litigation held by Tether’s sister company Bitfinex in New York over alleged abuse of Tether does not appear to have materially affected the stability of the asset.