Why has there been no additional issuance of USDT for seven consecutive weeks?

On July 26, the price of Bitcoin rose rapidly, approaching the psychological level of $40,000. It rose by 13% in the past 12 hours, almost recovering the nearly one-month decline. It is speculated that it may have rebounded after the decline, coupled with the news that Amazon plans to accept Bitcoin payments. According to an anonymous source within Amazon, Amazon plans to accept Bitcoin payments before the end of 2021. The source said that accepting bitcoin payments is the key first stage of the entire encryption project. Once a fast and secure bitcoin payment method is established, Amazon will add support for about eight crypto assets such as Ethereum, Cardano and Bitcoin Cash. Paid.

In addition, the source said that in addition to accepting Bitcoin payments, Amazon is said to be exploring the creation of its own native token, which may be released as early as 2022. A few days ago, Amazon was hiring a head of crypto assets and blockchain products for its payment team, which made people vaguely see that this e-commerce giant will soon enter the crypto asset market. As of now, Amazon officials have not responded.

However, in the current market, there are still uncertainties, and we need to wait for a clear direction. As the most important type of encrypted assets, USDT also has a very intuitive indication. The following is an article published by Muyao Shen on CoinDesk, “Why USDT has not been issued for seven consecutive weeks? “, will analyze why USDT has not issued additional issuance for seven consecutive weeks, what kind of market background and the reasons there are.

The “banknote printing machine” of the stablecoin quieted down.

At the end of May, just as the price of Bitcoin fell from a historical high, the parabolic growth of the stable currency USDT’s market value also came to an abrupt end. Since then, the transaction price of Bitcoin has been between 30,000 and 40,000 US dollars. A new round of discussion links these two things and responds to a conjecture a few years ago: Will the increase or decrease of USDT affect Bitcoin? Does currency price have a direct impact?

Why has there been no additional issuance of USDT for seven consecutive weeks?

USDT market capitalization versus Bitcoin price Source: Glassnode

However, according to CoinDesk’s interview, some analysts and market participants said that the sudden suspension of Tether’s additional issuance actually shows that three unprecedented challenges are threatening the dominance of the world’s most traded crypto asset USDT:

  • Recently, it is difficult for American traders to buy USDT with fiat currency;
  • One of USDT’s most powerful competitors, USDC, seems to be gaining more market share;
  • In addition, regulatory pressures around the world are also increasing.

The combination of these three challenges caused a super storm that was enough to shake the stablecoin.

Although Paolo Ardoino, the chief technology officer of Tether, admitted that the demand for USDT has declined, he believes that USDT is not alone in showing this trend.

The blow of crypto assets

After the price of Bitcoin was frustrated, it fell 41% from the historical high of US$64,928.14 in April, and the current price is about US$38,000 (updated on 7/26).

USDT is one of the affected members of crypto assets. The success of this stablecoin is largely due to its dominant position among traders and investors. They often use stablecoins linked to the U.S. dollar as an over-the-counter The channel for brokers to enter the crypto market.

For a long time before this, due to Bitcoin’s difficulty in breaking through the price range of $30,000 to $35,000, new cash had no incentive to enter the crypto asset market. On July 26, the price of Bitcoin climbed to around US$38,000. Maybe it will bring a turn for the better?

Rachel Lin, former vice president and founding partner of Matrixport, a Singapore-based crypto asset investment company, said: “Tether’s Asian market is mainly traded through over-the-counter traders. Decrease, the demand for USDT also decreases.”

Hong Kong’s crypto asset lender Babel said that due to weak demand for this stable currency, USDT’s interest rate has been continuously reduced. However, a Babel spokesperson would not disclose the reason for the recent decline in demand.

Dan Burke, managing director of institutional sales for the Asia-Pacific region of digital asset custody company BitGo, said that some negative news about USDT “may force various trading departments in Singapore and Hong Kong to reconsider USDT/USD transactions.”

USDC is on the rise

The demand for USDT seems to have dried up, and USDC has gradually become a new star in the stable currency market. USDC is another stable currency pegged to the U.S. dollar issued by the crypto financial services company Circle.

Circle recently announced a plan to go public through SPAC (a form of overseas backdoor listing). Not long ago, the company revealed its plan to expand USDC to more than a dozen blockchains outside of Ethereum in the future.

Tron is a blockchain led by Justin Sun, a “net celebrity” in the crypto industry. It is one of the blockchains that recently started to support USDC. One of the goals of doing so is to “promote USDC’s development in Asia and the world increase.”

Currently, there are more USDT on Tron than on Ethereum, because Asian traders prefer blockchains that provide faster and cheaper transactions. This makes USDC more inclined to enter Tron.

“I think USDC has a chance to compete with USDT in the Asian stable currency market,” Justin Sun told CoinDesk, “I think the current Asian stable currency market needs a diversified infrastructure, and customers in Asia are looking for more stable currency options.”

Rachel Lin, former vice president of Matrixport, a former lending transaction custody platform, said that unlike USDT, which mainly relies on OTC channels, because Circle provides humanized customer service, investors in Asia can easily buy USDC.

Rachel Lin said: “It’s very easy to do USDC business. “Once you submit the required documents, a manager will usually communicate with you via email. “

It is still too early to conclude that USDC can defeat USDT and gain a dominant position in Asia, but USDC has already won another fierce field of crypto assets-decentralized finance.

According to data from Glassnode, USDC currently has nearly 50% of its supply locked in smart contracts, while Tether only has 20%.

Why has there been no additional issuance of USDT for seven consecutive weeks?

The supply percentage of USDT and USDC in smart contracts. Source: Glassnode

Ryan Watkins, a research analyst at Messari, said: “USDC is increasingly being used for on-chain and payment, and such applications continue to grow.” “And USDT is mainly used for derivatives. For exchange settlement and margin, as the market becomes calmer, the application of USDT has decreased.”

The crypto bear market and the vulnerability of USDT

USDT has always had a lingering problem: its reputation in the crypto community. This is the third obstacle facing USDT.

Noelle Acheson, head of market insights at Genesis Global Trading, a crypto asset prime brokerage firm, said: “The market is full of bearish sentiment, and traders are looking for reasons.” “Now it’s FUD (Fear, Uncertainty, Doubt). , Refers to a period full of fear, uncertainty, and doubt), the vulnerability of USDT is always a topic of discussion.”

According to Acheson, the market “urgently” needs to explain why the price is so “sluggish”. As long as the reserves of the TEDA company behind USDT remain opaque, USDT will become a target to be held accountable. (Note: Both Genesis and CoinDesk are subsidiaries of Digital Currency Group)

Recently, regulators and governments around the world have raised many questions about USDT and other stable currencies. Fed Chairman Jerome Powell (Jerome Powell) recently testified before the U.S. House of Representatives Financial Services Committee, answering Rep. Anthony Gonzalez’s question about Tether reserves, according to Tether According to the May disclosure, nearly half of Tether’s assets are unspecified commercial paper.

Powell said: “ Commercial paper refers to unsecured short-term paper issued by companies. These papers are mostly investment grade and have good liquidity. However, in the face of the crisis, the market disappeared and users only want to get back. Their money. Very simple. These economic activities are very similar to bank deposits and money market funds and need to be regulated in a similar way.”

Hassan Bassiri, vice president of asset management company Arca, said that some traders may “borrow USDT in exchange for USDC.” “You know, USDC is worth 1 U.S. dollar, and USDT can be borrowed by using USDC. When USDT is not supported by adequate reserves and the price fluctuates, you can use USDC to buy back USDT at a price lower than 1 U.S. dollar.” ( Note: There is arbitrage space in this)

In fact, according to CoinGecko, Axie Infinity’s latest popular token, AXS, hit a record high last Wednesday. There are USDT trading pairs on the exchange, but almost no AXS/USDC trading pairs.

Bassiri said that if a trader is short USDT, the purpose of doing so is to respond to FUD sentiment. However, he does not agree with all parties’ concerns about stablecoins.

“USDT is good, and has always been good.” He said.

[1] At the end of 2018, the U.S. Department of Justice investigated whether Tether manipulated the price of Bitcoin.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/why-has-there-been-no-additional-issuance-of-usdt-for-seven-consecutive-weeks/
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