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Despite weak trading volume and price movements in the cryptocurrency market, Tether’s market capitalization is growing, approaching its all-time high of $82.9 billion. Tether, also known as USDT, is a stablecoin pegged to the US dollar, making its value more stable than other cryptocurrencies.
Explosive growth of USDT
The question remains: why is Tether’s market capitalization growing despite the absence of strong movements in the cryptocurrency market?
According to research firm Kaiko, one theory is that the imminent end of BUSD, another stablecoin, and Circle’s USDC depegging event in March caused traders to switch to USDT. However, the data does not show a significant increase in USDT market share compared to other stablecoins in recent months.
The market share of stablecoins on the CEX shows significant Tether dominance at 76%. Source: Kaiko Research.
Another possible reason for Tether’s market capitalization increase is Binance’s promotion of TUSD as an alternative to BUSD. This move could have forced traders to abandon BUSD and move to other stablecoins, including USDT.
On decentralized exchanges (DEXs), USDT accounts for just 20% of non-stablecoin swap volume, an increase since the start of the year, but not enough to explain the increase in market capitalization by more than $15 billion over the same period.
While the March banking crisis led to a large movement of capital into USDT, the actual use of the stablecoin on both centralized and decentralized exchanges suggests that the increase in market capitalization is “excessive”, according to Kaiko. Additionally, one possible explanation for Tether’s rising market cap could be the Tron network. The most USDT, or $46 billion, is issued on Tron, compared to $36 billion on Ethereum.
Despite Tron’s minimal decentralized finance (DeFi) activity and lack of support from major exchanges like Coinbase, offshore exchanges like Binance and OKX hold the largest USDT balances on Tron. This suggests that market makers and whales prefer Tron due to its low transaction fees.
Unlike Tether’s market cap, USDC’s market cap correlates with trading volume. As USDC volume grows, market capitalization increases in a similar manner, and vice versa. However, USDT’s market capitalization has little correlation with trading volume, which is questionable given that the main use case for this stablecoin is trading.
Major Tether Moves Raise Questions About Market Stability
According to Whale Alert on Twitter, there have been several major moves in the crypto market over the past three hours with Tether’s stablecoin, USDT. These movements imply a significant transfer of funds with broader market implications.
First, an unknown wallet transferred $50 million, or $50 million, to Bitfinex, a popular cryptocurrency exchange. This was followed by Kraken, another leading exchange, which transferred $60 million, or $60 million, to Bitfinex. Finally, Tether Treasury, the issuer of USDT, transferred $60 million to Bitfinex. In addition, $50 million was transferred from JustLendDAO to an unknown wallet.
The movement of these large sums of money suggests that there may be significant trading or investment activity taking place on Bitfinex, one of the largest cryptocurrency exchanges. These transfers may be associated with a large cryptocurrency purchase or a significant investment by a hedge fund or institutional investor.
Overall, the implications of these movements for the wider crypto market remain uncertain. However, given the size of Tether transfers, it is possible that they could affect the overall stability of the market and cause the price of the cryptocurrency to rise or fall.
BTC downtrend on 1-day chart. Source: BTCUSDT on TradingView.com.
Featured image from iStock, chart from TradingView.com