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Tether Price Falls on Crypto Exchanges: How Will it Affect Bitcoin?

Last Updated March 4, 2021 3:46 PM
Joseph Young
Last Updated March 4, 2021 3:46 PM

Technical analyst and crypto trader Aurelius revealed that the price of Tether (USDT), the most widely utilized stablecoin in the cryptocurrency exchange market, has fallen in the past 24 hours.

The drop in the price of Tether by around 1 percent led a premium to form on USDT-to-crypto trades, especially on USDT-to-Bitcoin trades.

1-day price chart of USDT, data provided by Coinmarketcap.com

As a stablecoin backed by the US dollar, the value of USDT has to remain at $1. Tether LLC, the company that operates USDT, is said to have $2.8 billion stored in a bank account based in Puerto Rico, according to BitMEX Research.

Hence, when the price of Tether drops, likely due to a sell-off on major crypto exchanges, it can lead to market instability.

1% Spread Between Bitfinex and Coinbase, Can it Impact Bitcoin?

On Oct.  3, cryptocurrency trader and well-recognized analyst Alex Kruger stated that the spread between Bitfinex and Coinbase, a USDT-backed exchange and a fiat exchange (US dollar), increased to 1 percent.

Because the price of Tether fell to $0.99 at its daily low point, it quickly became more expensive to purchase cryptocurrencies with Tether on cryptocurrency-only trading platforms, by around 1 percent.

“There’s a 1% spread between Bitfinex and Coinbase at the moment. Quite striking. Yesterday it was around 0.75%. It usually is around zero,” Kruger said.

The only logical explanation to the drop in the price of Tether in the past 12 hours is a sell-off of USDT by large holders. As large USDT holders started to sell the stablecoin, its price dropped, causing a premium to form on USDT-to-crypto pairs.

Considering that it is more expensive to buy cryptocurrencies like Bitcoin and Ethereum with USDT than with the US dollar, it can be argued that traders have sold USDT to invest in cryptocurrencies.

After hitting a weekly low at $6,440, Bitcoin has recovered beyond the $6,500 mark, around the same time Tether demonstrated a 1 percent decline in its value. The valuation of the crypto market also increased by $4 billion, from $212 to $214 billion, in the past 12 hours.

1-day price chart of Bitcoin, data provided by Coincap.io

It is entirely possible that on Oct. 3, a group of traders or large USDT holders sold a big chunk of Tether holdings to invest in various cryptocurrencies, predicting market recovery in the short-term.

Tether leaving Noble Bank, which has provided banking support to Tether LLC for years, could have also had an impact on the short-term price trend of the stablecoin.

“The bank has lost many of its customers, including Bitfinex and Tether, and is no longer profitable, the person said. The company could sell itself for a price between $5 million and $10 million, based largely on the value of its Puerto Rican license to operate as an international financial entity, the [source] said,” Bloomberg reported. 

Good to Have Alternatives

On Sept. 27, after listing PAX, the New York Department of Financial Services-approved stablecoin operated by Paxos, the world’s largest crypto exchange Binance CEO Changpeng Zhao said:

“For people who complained about lack of audit on USDT, here is another alternative. As always, make sure you understand what it is before you buy.”

Although the reasons behind the drop in the price of Tether still remain unclear, it is likely that it had an impact on the short-term trend of the market. As such, for the long-term growth of the market, it is positive to have alternatives to dominant cryptocurrencies.

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