Depth data: USDT is almost controlled by the Chinese market

The most important event in the cryptocurrency industry this week was the confrontation between the New York Attorney General's Office (NYAG) and Bitfinex and Tether. The hearing of the case will be held on July 29, and the outcome of the case will be generated for the entire digital cryptocurrency industry. Tremendous influence.

The case originated at the end of April this year, and NYAG sued Bitfinex and Tether for alleged major violations. After the news was released, Tether had to admit that there was not enough US dollar reserves, and USDT no longer maintained a 1:1 anchorage in the US dollar price. There has been a long discussion on BitMex and Tether's manipulation of bitcoin prices through the issuance of USDT. This article combines historical events to analyze USDT's issuance mechanism, trading volume distribution, premium level and other market determinants, and found USDT overall. The close relationship between circulation and China's market demand, and expressed different views on the argument that bitcoin prices are manipulated by the issuance of USDT.

A more transparent and regulatory-compliant stable currency is good for the long-term best interests of the cryptocurrency industry, but in the short term we need to pay attention to the volatility and impact of this hearing on this market that is still very dependent on the USDT liquidity. .

New York State prosecution prosecution led to USDT thunder?

Bitfinex and Tether's hearing will be held on July 29th (Tuesday, Beijing time). In the case of the case last week, Bitfinex refuted the allegations of the New York Attorney General's Office (NYAG) (1). Mainly stated that Bitfinex and Tether do not trade with any New York participants. The counterparty of the respondent – ​​that is, the opponent actually trading with the respondent is a foreign entity; USDT redemption has never been a problem; Bitfinex has Every effort is made to exclude US users from promoting the US and New York users; LEO is not issued to US users.

At the end of April, the New York State prosecutor brought Tether and its parent company iFinex and Bitfinex to court, accusing them of a number of major violations , and further speculated that Tether was suspected of misappropriating $850 million in USDT reserves to help Bitfinex make up for the deficit . Tether's General Counsel acknowledges that approximately 26% of USDTs do not have legal currency reserves to support, and Tether acknowledges that 1:1 anchor assets are no longer maintained (2).

In order to solve the problem of $850 million in losses, Bitfinex raised $1 billion through the LEO platform currency issued by IEO on May 10, and the USDT raised has a loss of 850 million. On May 16th Bitfinex won a temporary victory in a lawsuit against NYAG, and the court allowed Bitfinex to continue its normal business. As early as March 11, Bitfinex has launched the USDt/USD trading pair, which acknowledges breaking the rigid exchange relationship between USDT and USD1:1 .

Another big trust crisis for Tether occurred last year. At the beginning of October last year, speculations about major problems with Bitfinex and Tether that rumors of customer withdrawals were intensifying, and customers and the public questioned the company's solvency. On October 12th, bitcoin prices on the Bitfinex exchange began to appear at a premium, while other USDT trading pairs began to experience a premium. The market began to express concern that USDT and Bitfinex are disconnected from the global market.

On October 15th, Bloomberg issued a statement saying that " If the government starts investigating Tether's wrongdoing, USDT will soon lose value ." On October 15th, as the trader bought a lot of USDT in his hand, the price of the latter started at 13 o'clock in the afternoon and soared from $6,300 to more than $7,200 in one and a half hours, while the lowest price of USDT fell. To $0.86. After the USDT experienced a continuous negative premium for more than two months, it finally returned to the USD 1:1 exchange rate in mid-December. Bloomberg also published an article at this time "confirm that every USDT in the market actually has a dollar reserve" (3).


Figure 1: Tether 2018 Trust Crisis & Timeline for USAG Prosecution in 2019

Top: USDT/USD exchange rate on the Kraken exchange – blue;

Bottom: Bitfinex/Bitstmap/Bittrex Bitcoin transaction price and Coinbase price premium percentage – green / pink / light blue

In addition to NYAG's speculation that Tether is suspected of misappropriating USDT reserves to help Bitfinex make up for the deficit, the market's discussion and research on whether bitcoin prices are manipulated by the issuance of USDT has started from the soaring price of bitcoin in 2017, and so far there have been several Research reports have caused widespread discussion in the market.

The USDT issuance can manipulate the market?

First, an anonymous report ( in January 2018 used the Kolmokov-Smirov test, which negated the hypothesis that "the USDT issuance has no correlation with the bitcoin rise" and believes that " The issuance of USDT should be responsible for 40% of this round of bitcoin gains” (4).

In June 2018, John Griffin, a professor at Texas who was known for identifying fraud on Wall Street, also published a paper ( Analysis of blockchain data found. USTD is always minted by Tether in large quantities; 2. When USDT is cast and distributed to exchanges such as Bitfinex, when Bitcoin prices can't support falling, at Bitfinex and others The USDT of the cryptocurrency exchange began to buy bitcoin in a synchronized manner, driving the price of bitcoin to rise, while when bitcoin rose, there would be no increase in USDT synchronization. The paper covers trading from March 2017 to March 2018. The author lists 87 trading samples for the period. Although the 87 sample time coverage is less than 1%, it constitutes 50% of the reverse of the bitcoin decline. The authors passed 10,000 simulation tests to prove that the patterns in the conclusions were not random.

According to another Bloomberg report, Abrantez-Metz, another discriminator of fraudulent transactions, said that the USDT/USD related data in the Kraken exchange said: "It is unusual for large transactions to not cause price changes. I have seen too much data, I don't think these transactions are real. " (5)

Although the various studies above attempted to demonstrate the correlation between the increase in USDT and the rise in Bitcoin through different methods, the release mechanism of USDT was not specifically studied, or the release of USDT was always questioned in the black box due to the opacity of Bitfinex and Tether. In progress .

How is the USDT printed?

Even though Tether insists that each new USDT has cash in an offshore bank account for storage, many believe that USDT can be cast at will—or to cast USDT out of thin air before real dollar remittances to Tether bank accounts.

For example, on the 14th of this month, due to human error Tether cast a $5 billion USDT on Tron and destroyed it, it was reported that it was intended to help the Poloniex exchange transfer $50 million based on the USDT on Omni to Tron, but it appeared. Technical error.

According to Will Harborne, founder of Ethfinex, " When people see a lot of USDT being cast, it means that a few wealthy customers have booked these big USDTs a few days in advance, and then sell these USDTs on the market, and This is usually before Bitcoin starts to rise. " (8)

In addition to a small number of Tether's so-called "corporate customers," Tether and its investors must purchase at least $100,000 directly from their website, and Tether needs to create a new batch of USDTs to deal with the "rough," Expected demand." These new USDT castings require key members of the company to use their public key signatures, which takes time, so this is why investors' USDT needs are aggregated into large quantities before they are cast. This explains why Professor John Griffin is always thinking about why the USDT is always being mass-produced.

Harborne also revealed that Tether is basically just a rough forecast of demand and pre-created USDT on the chain: "Usually customers will not send $5 million without prior notice to Tether. So, in the next few days, Tether can know it. It will cost roughly $250 million. Once the dollar reaches the Tether account via wire transfer, the actual USDT will be dispatched to the customer's address."

When asked what is “roughly forecasted demand” and “who is buying USDT,” Harborne said: “The largest USDT customers are OTC OTC counters, which are sold in bulk to investors or large traders. USDT . For example, an OTC platform will sell BTC to large US buyers, and then exchange the US dollars received for USDT to spread a portion of this large order to transactions such as Bitfinex and Binance for better liquidity and transaction price. ."

In addition, the release process of USDT is actually composed of two steps: authorized and issued/issued. The banknotes are sent to the Tether Foundation address (Tether Treasury) at the same time in the chain; The issuance is the transfer of the USDT to the buyer or exchange address. The part that has entered the Foundation address but has not been transferred to the buyer's address is the Authorized but not issued part, which is not actually circulated.

Since April of this year, the market value of USDT has risen from US$2 billion to US$4 billion. At the same time, the price of Bitcoin has soared from US$4,000 to over US$13,000. Whether the two events are really directly related and once again discuss. Since the USDT is mainly used in markets that cannot buy and sell cryptocurrencies directly through legal currency, the Asian market – especially the Chinese market – is decisive for the USDT.

The huge impact of the Chinese market on the USDT

According to the China Special Research Report released by DIAR in June, most of the newly distributed USDTs flowed to the China Exchange. (6) In the second quarter of 2019, this figure increased to 62%, while the US exchange's demand for USDT fell from nearly 40% in the fourth quarter of 2017 to less than 5%; In 2019, the USDT trade volume of the China Stock Exchange exceeded US$10 billion, and the US only traded US$450 million USDT.

At the same time, since 2019, the trading volume of USDT has been in line with the exchange volume reported by the exchange, that is, the global cryptocurrency trading volume has indeed increased rapidly in 2019. We can also see the top ranked addresses on the Tether Rich List by Bitance, Huobi, Okex and other exchanges. Https://


Figure 2: Regional distribution of transfers to the exchanges in the USDT chain % -DIAR; China / Other regions of the world / USA (black / gray / red) – DIAR


Figure 3: USDT chain transfer volume & exchange reported volume (red/black) – DIAR

In addition, according to Morgan Stanley's July report (7), USDT's bitcoin trading volume began to soar in the second half of 2017, and it accounted for about 80% of global bitcoin trading volume earlier this year, and then gradually dropped to about 60. % .

As for why USDT is so popular, analysts at Morgan Stanley believe that the popularity of USDT has soared from relatively easy trading and lower transaction costs. Investors can easily trade other cryptocurrencies with USDT, which is faster and cheaper than redemption through banks or other asset classes. Another advantage comes from the ubiquitous network effect of USDT on various exchanges. According to CoinMarketCap data, USDT has more than 400 trading pairs, while the second-ranked TrueUSD has only 165.


Figure 4: % of different currencies/assets versus bitcoin volume

Powder – Other, Light Green – Korean Won, Red – Euro, Light Blue – Renminbi, Dark Green – Yen, Yellow – USDT, Blue – US Dollar

Morgan Stanley 2019/7/16 Research Report Update: Libra, Bitcoin and Cryptos

Due to the huge impact of the Chinese market on USDT, we can further analyze the supply and demand in the Chinese market and the RMB transaction price premium level of USDT in the domestic OTC over-the-counter market to further analyze whether the issuance of USDT is determined by Tether, or whether the market supply and demand relationship Decided . Or can we find market demand that supports its behavior during the phase of Tether's massive issuance of USDT.

The issuance of the USDT is determined at will by Tether, or by market supply and demand.

As can be seen from Figure 4 above, after the arrival of the “94” regulation in 2017, the domestic exchange currency channel was shut down a lot, and the transaction volume settled by RMB CNY has been difficult to see in the figure. The main player in the cryptocurrency market – Chinese traders are seeking new entry methods, and USDT as a stable currency has gained a lot of attention and demand from domestic players during this time period.

Compared with “94”, the market value of USDT rose from US$60 million to US$300 million in the four months from May 2017 to the end of August 2017. From September to the end of January 2018, the market value of USDT was US$400 million. The skyrocketing to $2.2 billion, the newly issued USDT is more than five times the total market value before "94" (see Figure 5). Therefore, the huge demand for USDT in the Chinese market is the most important factor in the rapid rise of the USDT market value during this period.

(Tether suspended the issuance of USDT (9) within one and a half months after the release of its audit report on September 15, 2017, so the USDT market value did not increase from mid-September 2017 to the end of October)


Figure 5: USDT Market Value and Trading Volume (Green/Blue) from May 2017 to February 2018 – Coinmarketcap


Figure 6: Top: USDT/USD Exchange Rate & USDT Market Value (Gray/Blue) on Kranken Exchange – Coinmarketcap

Medium: USDT RMB OTC Transaction Price Premium Level & Bitcoin Price (Blue/Orange)

Bottom: USD/RMB Offshore Exchange Rate (Gray) –

Gray shaded area: USDT market value stationary stage; green shaded area: USDT April rapid issuance stage;

Orange shaded area: NYAG sues Tether – USDT suspends additional issuance; blue shaded area: USDT re-issued again

The rapid issuance of the USDT in 2019 began in April, with USDT issuing approximately $800 million in April. According to Figure 3, after 2019, China is undoubtedly the largest share of the USDT trade . From Figure 6, we can see that before this, from the second half of February to the beginning of April – the shaded area of ​​gray, the USDT of the domestic RMB OTC transaction has been in a positive premium, and the premium level has also risen from 1%. Up to 3% or so. The long-term premium of USDT in China can be used as evidence of USDT demand growth. This may be due to the fact that Bitcoin’s rise in the first line of $3,500 has caused a large number of demand-seeking needs.

After entering April, the USDT premium level of domestic OTC transactions rose again with the increase in bitcoin prices, indicating a huge demand for USDT in the Chinese market . At the same time, the price of bitcoin in South Korea has also appeared as a so-called "kappa premium", that is, the bitcoin price of the Korean won in the Korean won is higher than the price of the dollar exchange such as Coinbase, and South Korea is also one of the regions where the USDT is heavily used. Therefore, the sharp increase in the USDT in April is behind the support of strong demand from East Asia.

From the end of April to mid-May, NYAG sued Tether without issuing a new USDT – orange shaded area. Similar to the USDT in the US dollar zone, the USDT of China's OTC transaction also had a negative premium during this period. Investors worried about USDT's policy risk and sold a large amount of USDT while buying Bitcoin , resulting in the first bitcoin price. During the hearing, it rose sharply from $5,500 to $8,000. After the court made a temporary judgment in favor of Tether, the transaction price of USDT's domestic OTC market returned to a positive premium.

After that, USDT once again increased with the rapid rise of bitcoin prices during the period from May to July, because the Bull-run Optimism in the bull market caused funds to continuously flow into the cryptocurrency market, and the volume of transactions increased . The same phenomenon can be observed in exchanges such as Coinbase where the US dollar can be directly circulated – Figure 7 shows that the large inflow of funds and the continuous enlargement of trading volume have pushed up the price of the currency.

In addition, we observed that due to the trade war, the RMB exchange rate against the US dollar depreciated sharply in early May, and the outflow effect of the RMB may also cause some funds to enter the cryptocurrency field.


Figure 7: Bitcoin US Dollar Volume & Bitcoin Price at the End of January to End of July 2019 – (Blue/Orange) –

We zoomed in and observed on Tether's new 100 million USDT operation on July 2, and Tether Treasure distributed the newly minted 100 million USDT to key nodes of market liquidity through a series of large transfers over the next two days. Exchanges such as Bitfinex, Coin Safety, Fire Coin, and Okex are the main transfer targets, and the newly minted USDT enters the market in this way . The previous USDT issuance was 150 million (9) on June 22.

Bitcoin prices rose sharply from $11,000 to more than $13,000 after 22nd, and quickly retreated to above $10,000 on July 1. As you can see in Figure 8, the end of June is exactly the USDT RMB OTC transaction price in the chart. The premium with the highest premium level in the segment has a premium of more than 2%. Since there is no direct renminbi trading channel, when the bitcoin price rises rapidly, a large amount of new renminbi will be used to exchange the USDT and then buy the bitcoin. In the fast reversal of the market, a large number of bitcoins are sold for USDT. avoid risk. Therefore, in the period of high volatility, the market has a great demand for USDT. Therefore, on July 2, the issuance of USDT has a relatively sufficient market demand behind it.


Figure 8: USD 15 RMB OTC Transaction Price Premium Level & Bitcoin Price (Blue/Orange) from June 15 to July 27 –

From the above analysis, it can be seen that the issuance of USDT almost has strong market demand behind the support, but the overall distribution mechanism of USDT is very lack of transparency . On the one hand, Tether provides effective liquidity for cryptocurrency investors who are unable to access the currency directly through USDT. On the other hand, Tether cannot publicize the buyer's remittance bill or periodic audit report due to regulatory issues.

However, the lack of transparency is not the same as fraudulent or manipulation of the market. Through the above research, I personally prefer that the circulation of USDT is determined by the market, especially the demand of the Chinese market , and the market's herding effect magnifies the market. The demand for USDT during a period of time also caused a large number of additional issuances of USDT in a short period of time.

In contrast, some of Tether's competitors (USDK, TrueUSD, USDC, Paxos, GUSD, etc.) issue audit reports every month through audit firms, and such a mechanism is clearly more transparent and reliable than USDT.

Analysis of the situation and market conditions before and after the hearing on July 29:

Comparing the situation before the first hearing, the current price of the USDT RMB OTC transaction price has dropped, but it remains at the positive premium (at the end of Figure 8) . After experiencing a fierce reaction in April, the market seems to have reasonably expected this hearing. At the testimony on July 22nd, Bitfinex also submitted materials to refute the allegations of the New York Attorney General's Office (NYAG) .

But obviously the market does not have the conditions to attract large amounts of new funds into the upswing before the risk event . In addition, we need to pay attention to the premium level of USDT against the US dollar and RMB trading in the near future. Once there is a rapid decline, it is likely that the last situation will occur – the market is surrounded by risk aversion, and investors are selling USDT, causing bitcoin prices to soar.

Overall, the USDT still occupies more than 80% of the market value of the stable currency market, more than 95% of the trading volume and a speed that is many times higher than other stable currencies . The growing network effect of the USDT has led to a clear advantage in liquidity and a reduction in its volatility. After several USDT violent thunders, major exchanges have also stocked contingency plans to deal with any possible problems with the USDT.

Last but not least, the scope of the hearing was limited to the extent to which Bitfinex and Tether were suspected of fraudulently against New Yorkers, and the scale may be much smaller than the overall scope. In the long run, transparency and compliance with regulation are two conditions that need to be stabilized, and are also beneficial to the long-term best interests of the cryptocurrency industry.

For Bitcoin, a new asset that is determined by algorithms and built under the deflation model, it can benefit from the two long-term trends of the gradual depreciation of major developed and emerging countries and the under-average growth environment in most developed countries. . The pursuit of yields may push investors to further configure Bitcoin as a unique asset, which could be a powerful catalyst for Bitcoin's next bull market.