04
Sep
19

Tether USD (USDT): Bitcoin Price is closely linked to Tether Token Print

 

Tether USD (USDT): The controversial stable coin


 

Tether is an unregulated blockchain based token, emitted by Tether Limited, which is traded 1:1 to US-Dollar. Ever since its emergence in year 2014, it has been involved in various conspiracies and FUD articles. Tether is often being accused of not holding the equivalent amount of assets in its balance sheets in order to legitimize the price stability of the Tether token of 1 USD.  Thus, Tether is frequently being mentioned in articles about cryptocurrency market manipulation, one of which was on the 25th and 26th of April 2019, when the Attorney General of the Supreme Court in New York has sued iFinex Inc (Bitfinex Exchange) and Tether Limited for allegedly having embezzled $850 million.

 

FYI: IFinex Inc. and Tether Inc. have a mutual shareholder structure.

 

Due to the frozen bank accounts holding $850 million, Bitfinex has initiated an IEO (LEO token ), selling 1 billion exchange tokens at 1 USDT each, in order to cover the big hole in their books.

 

At current stage, the LEO Token is taking the 14th rank in market capitalization ($1.67bn) according to CHAIA.iO.

 

After all, Tether has always been able to prove against all accusations.

 

Why Tether’s market cap of only $3.6bn can influence a $330bn market tremendously


 

Charlie Shrem has pointed out not to worry about Tether’s alleged market manipulation, due to the fact, that Tether USD only has a fractile (today $3.6bn) of the total cryptocurrency market capitalization (today $330bn) and therefore doesn’t have a big impact on the crypto market.

 

As much as I respect Charlie for his knowledge and advocation for the cryptocurrency space, I am here to tell you that Tether can indeed influence a $330+ billion market heavily:

 

Market cap = circulating supply * price of last recorded trade

 

In short: MC = CS * P

 

Tether’s market cap is fundamentally different:

 

Tether’s price is fixed to 1 USD and only changes occasionally +-4% on average, which results in MC = CS.

 

That’s important, because the order book wouldn’t contain any big deviation from the current price. Therefore, the market capitalization equals the circulating supply. That is a fundamental difference, because the spread as well as the density of the order books are essential to increase the market capitalization and price of an asset.

 

For demonstrating purposes, consider the price of water bottles and its supply & demand depicted in the following order book:

 

SELL ORDERS:


 

2 bottles p…

5 bottles per $10

10 bottles per $5

20 bottles per $3

10 bottles per $2

10 bottles per $1

 

BUY ORDERS:


 

100 bottles per $0.50

100 bottles per $0.10

10 bottles per $0.05

3 bottles pe…

 

Last settled trade: $0.50 USD

 

Total water bottles in circulation: 10 Billion

 

Market Capitalization = $0.5 * 10bn = $5bn

 

Now let’s play the game of increasing the market cap:

 

  • Institution “A” buys the entire demand up to $10 per bottle.
    -> “A” therefore pays a total price of 5*10+10*5+20*3+10*2+10*1 = $190

The last settled price was $10. The market capitalization has increased from $5bn to $100bn with an investment of $190 only.

 

Of course, the example I made is very extreme, but this theory underlines the legitimacy of the question whether stable coins like Tether are fully backed.
According to JP Morgan Stanley, only a total of native fiat $6bn have been invested in cryptocurrencies. Now considering that there is $3.6bn parking in USDT, may wake one or the other up.

 

While all this is just easy math, lets have a look at the correlation of the market capitalization of Bitcoin and Tether USD. One may say, one could have predicted the entire fall and rise of Bitcoin through the Tether token print:

 
Correlation of Tether and Bitcoin Market Cap
 

Tethers market dominance in relation to other stable coins:

 
Tether takes 79% of market dominance among stable coins
 

Tethers dominance in terms of traded volume within 24h:

 

 

 

Sources

 

Raphael Birchner
CHAIA Master Brain