Tether Limited today introduced a new batch of Tether (USDT) worth USD 250 million into circulation, according to blockchain data, bringing the total USDT market cap up to USD 2.7 billion. Past research shows that there is a positive correlation between large quantities of USDT being issued and increases in Bitcoin’s price, so this could be good news for the overall Bitcoin market.
USDT is “printed” whenever cash is deposited cash into Tether Limited’s linked bank account. Tether is intimately linked to Bitfinex since they both have the same CEO, Jan Judovicus van der Velde. Bitfinex is the largest USD to Bitcoin exchange in the world with tens of thousands of Bitcoins of daily trade volume. Tether is used by cryptocurrency traders on exchanges as an alternative to USD when it is not possible for them to use the actual US currency. Each USDT is tied to the value of the US dollar and, therefore, worth almost exactly USD 1, with mechanisms built into USDT’s protocol to maintain parity.
A study found that large amounts of USDT being printed corresponds with rises in Bitcoin’s price, and this might have played a critical role in Bitcoin’s rally to USD 20,000 in December 2017. Specifically, the study found that Tether outflows from Bitfinex occurred less than 1% of the time, but correspond with 50% of Bitcoin price rises and 64% of price rises with other cryptocurrencies like Ethereum and Zcash.
The study alleged that USDT was possibly being printed to manipulate Bitcoin’s price, especially since Tether Limited was not auditing their USD reserves. This generated many speculative headlines and has been blamed for Bitcoin’s price plummet, based on the assumption that the printing of about USD 2 billion of “fake” USDT (unbacked by actual dollar reserves) was a primary reason for Bitcoin’s rally.
However, Tether Limited responded by hiring one of the most reputable law firms in the United States to verify their bank reserves. The law firm found that Tether Limited had, in fact, backed every USDT with USD in bank accounts, making a case for a legitimate Bitcoin rally.
Now that it is known that USDT outflows are likely to be legitimate, the study can be looked at in a more positive light.
Bitcoin’s price has risen about USD 100 today and sits near USD 6,250, well off the lows hit yesterday near USD 5,750. USDT has seen a volume of USD 4 billion today, the second highest cryptocurrency volume behind Bitcoin, and an indication of extremely active USDT trading activity.
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