USDT has been trading at a negative premium for more than a month. Why is the "moving bricks to save the market" no longer effective?

On September 26, Huobi issued a notice that it would clear out users from mainland China. As soon as the news came out, Bitcoin did not experience a large price fluctuation, but USDT began to fall. At its lowest point, the price of USDT even fell below 6 yuan. Compared with the exchange rate of 1 US dollar to 6.4 yuan, the negative premium of USDT reached more than 6%. Recently, the price of USDT has returned to around 6.3 yuan, but it has been in a very high negative premium state for a month. We can't help but ask: Why did the price of USDT deviate from the normal price for a long time this time? Why didn't it recover as quickly as before? How big is the impact of this policy?

Why can’t the USDT price return to normal?

Regarding the question of why the price of USDT has fallen and has not been able to recover for a long time, the author consulted an OTC acceptor in the industry. The acceptor said that first of all, the price fell because domestic investors panicked and sold USDT to cash out after Huobi announced the withdrawal of mainland Chinese users. Since most of the users of USDT are domestic users, excessive panic selling led to a decrease in liquidity, and the price naturally found it difficult to rebound. On the other hand, concerns about policies led to a large number of USDT acceptors withdrawing from the market, further reducing the support for prices. "Under normal circumstances, acceptors will work together to control prices within a relatively stable range, but this time the withdrawal of some acceptors has changed the supply and demand relationship, and it will be difficult for prices to return to normal in the short term."

Just after the USDT fell on September 26, many voices appeared in the market. Many people believed that the USDT price could be restored to normal through arbitrage from the evening of the 27th to the 28th, which is Monday daytime in most parts of the United States, but the fact surprised many people. In response to this question, the acceptor consulted by the author also gave an answer: In theory, it is indeed possible to buy USDT in China and then exchange it for US dollars at Tether, but on the one hand, Tether's minimum exchange limit is 100,000 US dollars, and there may be a handling fee of up to thousands of US dollars, so small-amount exchanges are not cost-effective. In addition, opening an account in Tether also requires "raising an account", and large-scale redemption of new accounts may also attract foreign regulatory attention. On the other hand, even if the above conditions are met and the amount is large enough, there is no obstacle to redeeming US dollars through Tether, but because the domestic supervision of foreign exchange is already very strict, there are strict restrictions on both individuals and companies. Even if you successfully exchange US dollars at Tether, if you want to exchange the funds back to RMB in China, both the time cost and the capital cost may be higher than the negative premium of USDT, which is not cost-effective.

On the one hand, the tightening of policies has led to bank runs and the withdrawal of acceptors. On the other hand, the cost of "moving bricks" is likely to be higher than the benefits. These two reasons have caused the USDT price to not return to normal levels until today after this decline.

What did the policy document of the ten ministries convey?

Since the birth of USDT, there have been several price fluctuations due to policy reasons. However, the release of this policy document has caused exchanges including Binance and Huobi, as well as many mining pools, to announce their withdrawal from the Chinese market or even stop operating directly. So what is the difference between the document issued by the ten ministries and commissions this time and what message does it convey?

The author consulted Shen Zheyu, a lawyer from Shanghai Jincheng Tongda Law Firm. Shen said that the "Notice on Further Preventing and Dealing with the Risks of Speculation in Virtual Currency Transactions" (hereinafter referred to as the "Document") is a policy document, which is mainly a document made public to the society to guide the work of relevant government departments. It has a low legal effect, but has a high guiding significance. The issuance of this document clarifies the identification of cryptocurrencies by relevant government departments in the future. The content involved in the document may be gradually implemented into laws and regulations, but the characterization should be the same as this document. At the same time, the co-signatories of the document are the Supreme People's Court, the Supreme People's Procuratorate and the Ministry of Public Security. It is believed that these three units will regard this document as the basis for interpreting relevant issues.

The more important point of the document is that it directly denies the commodity attributes of cryptocurrencies and directly defines them as pure illegal items. Attorney Shen said that the first clause of the document, "Bitcoin, Ethereum, Tether and other virtual currencies are issued by non-monetary authorities...", directly denies the monetary attributes of cryptocurrencies and believes that they are not a kind of commodity, but a pure illegal item, which can be understood as fake cigarettes, fake alcohol, drugs, etc.

The second, third and fourth paragraphs of the document describe the state's characterization of cryptocurrency transactions and other behaviors. Unlike in the past, the descriptions of the above three paragraphs directly characterize the relevant behaviors as illegal and criminal activities, which can be investigated for criminal responsibility. Lawyer Shen said, "First of all, if virtual currency is used for any financial activities, it will be handled in accordance with the criminal law of the People's Republic of China on financial crimes and crimes that disrupt the market financial order. That is, all financial activities conducted through virtual currency, including buying and selling, will be characterized as criminal acts and need to be sentenced. In addition, even if the subject of virtual currency operation is outside the jurisdiction of Chinese law, as long as someone provides publicity and sales, payment settlement, and technical support (providing servers, providing app interfaces, etc. are all technical support) for the subject, they will be held legally responsible to a certain extent, which is an illegal or even criminal act. All civil acts that use virtual currency as a transaction object or means of payment will be declared invalid on the grounds that Article 8 of the Civil Code of the People's Republic of China states that "civil subjects shall not violate the law or violate public order and good customs when engaging in civil activities." If a crime is involved, it will also be subject to criminal sanctions."

It can be seen that the regulatory intensity conveyed by the document jointly issued by the ten ministries has undergone a qualitative change compared with the previous one. This may be the main reason why USDT users and acceptors have withdrawn one after another, and companies related to cryptocurrency trading, mining, etc. would rather stop operations than take the risk of continuing to provide services to domestic users.