It’s no longer news that Bitfinex and Tether are on the same side of an ongoing lawsuit which sees them facing charges of price manipulation and also a fraudulent cover-up. When the news was initially uncovered, the effect was felt in the market almost immediately as pretty much all assets saw a reduction in price value. After a while, things started to stabilize and prices began to slowly rise back up but as this recovery went on, a very rare opportunity for profits to be made through Tether began to present itself.
Market Response To The News
Bitfinex is said to have used USDT worth at least $850 million to cover up significant losses incurred by the exchange. The market response to this problem was instant as not only did the different coins lose significant value, the entire cryptocurrency market lost 10 billion dollars on the same day the lawsuit was initiated.
Tether is a stable coin that is pegged to the price of $1. However, the price of Tether dropped to about $0.955 when the story was broken. As the market restored itself to its past glory over the next couple of days, many saw opportunities for arbitrage and immediately took it, even as the opportunity was short-lived.
Arbitrage is a concept that describes the price inconsistency of one asset across different exchanges. This price difference, if it can be picked up on, presents a rare opportunity for traders to buy at a lower price on one exchange and then sell it higher on another. According to reports, Kraken was the “venue” for the Tether arbitrage as the possibility increased by as much as 5% on the exchange.
It is usually not very uncommon for arbitrage opportunities to present itself with most other assets. But with stablecoins, it rarely ever does happen. Tether is pegged to the dollar and at any point in time, the price of one USDT should be $1. Because of this, it’s extremely unlikely that an opportunity for arbitrage will ever again present itself for Tether.