Chinese Bitcoin Billionaire: USDT Premium Was Caused By the US Dollar Inflow, Not Tether Inflation
The price rally of Bitcoin and other altcoins starting from April 2nd saw major cryptocurrencies prices surge in double digits. The recent price rally also helped the crypto tokens to break their upper key resistance level they have been facing for over 5 months. However, after the price hike also led to additional inflation of around 7 yuan on USDT for Chinese traders on over the counter trades. This means the Chinese traders had to pay an additional 3-5 percent for Tether to avoid a ban on crypto trading.
Zhao Dong, Chinese Bitcoin Billionaire, and an early Bitcoin adopter was outraged by the USDT premium charges and vented his outrage on Weibo (the Chinese equivalent of Twitter). Dong mentioned that the hike in prices of Tether was due to the US Dollar inflow rather than Tester inflating USDT to hike the prices.
Dong explained that the largest crypto exchange in the United States, Coinbase largely make trading deals in Dollars, Coinbase which account for significant crypto trading volumes on a daily basis use Tether, since BTC-USDT trading pair are able to move freely across exchanges irrespective of the country they are located in, and since Tether is valued against the dollar there is no chance of price discrepancy. Thus Dong believes that the hike in USDT only occurred due to hyperactiveness of BTC-USD on coinbase for a short period of time.
Dong explained further that whenever there is a surge in prices of Bitcoin and other altcoins most of the traders rush to Coinbase as it saves the effort of converting USD to USDT. And since there are tons of USD to acquire, Coinbase goes up first followed by USDT. During this short period of time, the BTC/USD pair prices are higher than the BTC/USDT pair. Thus, during this small window, the Bitcoin's worth in US dollars would be more than the USDT. Which causes the prices of USDT to inflate.
Dong believes that inflation of USDT would be nullified as soon as investors without direct fiat to Bitcoin channel would form into Bitcoin with newly converted USDT. In such a scenario the BTC/USD pair would drop while BTC/USDT pair would improve and cause a “negative premium” in USDT for a temporary period; such as the current situation after the bull run.
However, despite Dong’s argument, the traders are not buying the negative premium theory as they believe most of the USDT trades were initiated by Chinese traders as the government does not allow for direct fiat investments into Cryptocurrencies in China.