This has been largely unexpected; just weeks ago, investors were fearing that Bitcoin “was dead” and heading “under $1,000.” And even now, analysts have been largely skeptical of the rally, asserting that it could just be an “impulse higher” prior to a reversion lower.
However, analysis suggests that the recent and ongoing growth of Tether USDT’s market capitalization shows that more upside is imminent for the crypto market.
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Tether’s Market Cap is Exploding Higher, Boding Well for Crypto Bulls
According to data from Skew.com, after yet another series of prints, the value of all circulating USDT supply has risen to $6.7 billion, $2.2 billion higher than the approximately $4.5 billion market cap seen at the start of March.
Analysts believe this trend to be positive for the cryptocurrency market, and may actually explain much of Bitcoin’s recovery from the $3,700 March lows to the current price.
Charles Edwards, a digital asset manager, remarked in January that “major changes in Tether’s market capitalization have led Bitcoin’s price over the last 1.5 years.”
Prior to the nearly 50 percent crash in November 2018 that saw BTC plunge from $6,000 to $3,150, the amount of USDT circulating fell by hundreds of millions; also, prior to the majority of 2019’s crypto rally was the printing of hundreds of millions worth of USDT.
Major changes in Tether’s Market Cap have led Bitcoin’s price over the last 1.5 years.
5 January 2020 was no different.
A healthy signal.
Keep it printing 
pic.twitter.com/dfe0dBJzwh
— Charles Edwards (@caprioleio) January 13, 2020
The historical accuracy of this indicator suggests it will play out again.
It’s Not All Buying Pressure
Notably, some suggest that the strong growth in the demand for USDT and other stablecoins isn’t one only based on investors looking to allocate their fiat capital into the crypto market, namely Bitcoin.
Sam Bankman-Fried, a former institutional investor turned CEO of both crypto derivative exchange FTX and Bitcoin quant fund Alameda Research, explained that there are three unlikely factors that are behind USDT’s market cap growth:
Over-the-counter traders, “primarily from Asia,” are looking to acquire USDT. Although Bankman-Fried did not elaborate on this assertion, it is a known fact that Chinese traders use Tether’s solutions because they can’t access the crypto markets in any other way. Some have also suggested that USDT is a good way to move money around the world, even if one doesn’t want to interact with Bitcoin.
People are selling Bitcoin for USDT to “hedge positions.”
People are selling Bitcoin for USDT to “reduce risk.”
1) Alright, time for some answers!
My brief explanation is roughly:
There’s huge buy-side demand for USDT. It’s coming from:
a) OTC flow, primarily from Asiab) People selling BTC –> USDT to hedge positionsc) People selling BTC –> USDT to reduce risk https://t.co/cFWSQhhAVl
— SBF (@SBF_Alameda) March 31, 2020
All this, he wrote, is “drives up [the price of USDT] and in turn supply, so people create.”
It isn’t clear if the existence of this side of USDT demand invalidates Edwards’ analysis, which was made under the assumption that USDT was being printed by investors looking to flood the market with Bitcoin, skewing order books to the buy-side.
Photo by Jude Beck on Unsplash