USDT premium was caused by USD inflow and not Tether Inflation, claims Chinese Bitcoin Billionaire

 

USDT premium was caused by USD inflow and not Tether Inflation, claims Chinese Bitcoin Billionaire

Bitcoin [BTC] recently led a significant bull run which pumped up the price by 15% in valuation. After the hike, the price of USDT was over 7 yuan on over-the-counter platforms, which meant crypto traders based out of China had to pay an additional 3 percent to 5 percent for Tether [USDT] to avoid a ban on crypto trading.

Zhao Dong, Chinese Bitcoin Billionaire, and an early Bitcoin adopter was outraged with the USDT premium and took it up to Weibo [Chinese equivalent of Twitter] to explain that the premium charge was due to USD capital flow, instead of the assumption that Tether was inflating USDT to hike the price.

Zong explained that the biggest exchange that currently existed in the US was Coinbase, which largely traded in dollars. The exchanges in the states which had significant trading volume would use USDT trading since BTC and USDT were able to flow freely between exchanges without any price discrepancy. Hence, the premium in USDT occured only when the Coinbase BTC-USD pair became hyperactive over a short period.

Zong further added that in a situation where the market surges, investors rush to Coinbase because the exchange saves the step of USD to USDT conversion. Since there is a lot of dollars to acquire, Coinbase goes up first and USDT goes up later.

In a short-term like that, the BTC/USD pair surpasses the BTC/USDT, which points towards a scenario where BTC would be worth more in USD than in USDT temporarily; which inflates the premium on USDT.

The increased premium on USDT would be reduced as soon as investors without direct fiat to Bitcoin channel would fomo into Bitcoin with newly converted USDT. In such a situation, BTC/USD would drop and BTC/USDT would improve and cause a “negative premium” in USDT for a temporary period; such as the current situation after the bull run.

Even though Zhao put forward an argument for investors to believe that US dollar inflow was the reason behind the price surge of USDT, many investors did not buy it as USDT was mostly played by Chinese traders.

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