【LongHash Column】Interpreting Market Sentiment: USDT Market Cap Exceeds 10 Billion, Yet Sustains Long-Term Discount?

Throughout the month of June, Tether (USDT) has been trading at a discount. A derivatives trader known as Theta Seek stated that this typically indicates weaker market sentiment, possibly due to fewer Chinese buyers in the Bitcoin market at the moment.

Over the past two months, Bitcoin has consistently failed to test the range of $9700 - $10000, corresponding to significant selling pressure. Data from ByteTree indicates that miners have been selling off the majority of the Bitcoins they mine over the past week. Since June 24th, miners have mined 6506 BTC, sold 6267, and retained only 239 BTC.

The uncertainty in the global economy, ongoing selling pressure from miners, and reduced demand for USDT may contribute to a bearish sentiment in the Bitcoin market.

Theta Seek wrote:

"Additionally, perhaps unnoticed by many, USDT has been consistently trading at a discount over the past few days. I usually consider this as a sign of a subdued market sentiment. In such cases, I believe there are issues in the market."

USDT is a stablecoin pegged to the value of the US dollar. On exchanges that do not support fiat-to-crypto transactions, USDT is often used as a substitute for fiat currency.

This major stablecoin has a market capitalization of $9.2 billion, theoretically making it the third-largest cryptocurrency. Its main users are Chinese traders. A report by Diar indicated that a significant portion of USDT's on-chain trading volume in the second half of 2019 came from Chinese investors.

In China, cryptocurrency trading is largely prohibited. However, users are still able to trade on some exchanges, such as Huobi. According to a Bloomberg report, 20% of Huobi's revenue comes from retail investors in China.

Perhaps due to a strong presence in a highly concentrated market, Ciara Sun, Vice President of Huobi, claimed that the company holds the most digital assets among top exchanges. Sun stated:

"Huobi holds a total value of digital assets at $5.427 billion (407.5K BTC + 4.8M ETH + 620M USDT), making us one of the largest exchanges in terms of user assets. Our outstanding capabilities in risk control, security, and liquidity safeguard this leading position."

According to Bloomberg, in October 2019, Chainalysis pointed out that 99% of Bitcoin spot trades in China involved USDT as OTC trading activities rapidly expanded. Chief Economist at Chainalysis, Philip Gradwell, mentioned at that time:

"People should pay more attention to the price formation inside large Asian exchanges. For example, OTC brokers may provide a lot of liquidity there. It can move very quickly."

The decline in USDT prices may suggest a decrease in Bitcoin buyers from China, as the majority of USDT trading activity comes from Chinese users.

However, the decline in USDT prices can also be interpreted in the opposite way. In the crypto market, when investors seek stability, they typically turn to stablecoins. Therefore, USDT can be seen as sideline capital held by investors waiting for re-entry opportunities. When they re-enter the market and sell USDT to buy BTC or other crypto assets, the price of USDT falls.

The price and premium of USDT are among the various data points analysts consider when evaluating Bitcoin price trends. Based on various technical and macro factors, USDT data can be used to support arguments for price increases or pullbacks.