USDT discount may indicate weak Bitcoin market sentiment

Tether (USDT) has been trading at a discount throughout June. An options trader with the username Theta Seek said that usually means weak market sentiment. It is possible that there are fewer Chinese buyers in the Bitcoin market at the moment.

In the past two months, Bitcoin has failed to successfully test the $9,700-10,000 range, corresponding to a fairly high selling pressure. Data from ByteTree shows that miners have been selling most of the Bitcoin they have mined over the past week. Since June 24, Bitcoin miners have mined 6,506 BTC and sold 6,267, leaving only 239 BTC.

The combination of global economic uncertainty, continued selling pressure from miners, and reduced demand for USDT may lead to the perception of weak Bitcoin market sentiment.

Theta Seek wrote:

“Also, in case you haven’t noticed, USDT has been trading at a discount over the past few days. I usually view it as a sign of low market sentiment. In this case, I think there’s something wrong with the market.”

USDT is a stablecoin whose value is pegged to the U.S. dollar. It is often used as a substitute for fiat currency on trading platforms that do not support fiat-to-cryptocurrency exchanges.

The major stablecoin has a market cap of $9.2 billion, theoretically the third-largest cryptocurrency. Its main users are Chinese traders. A report from Diar noted that during the second half of 2019, the majority of USDT’s on-chain trading volume came from Chinese investors.

Crypto trading is still largely banned in China. However, users are still able to trade on some exchanges, such as Huobi. A report by Bloomberg said that 20% of Huobi’s revenue comes from retail investors in China.

Perhaps due to its strong presence in a highly concentrated market, Huobi Vice President Ciara Sun said that the company holds the most digital assets among the top exchanges. Sun said:

“Huobi’s total digital asset value has reached $5.427 billion (407.5K BTC + 4.8M ETH + 620M USDT), so we are one of the largest exchanges in terms of user assets. Our outstanding capabilities in risk control, security, and liquidity ensure this leading position.”

According to Bloomberg, in October 2019, Chainalysis pointed out that with the rapid growth of OTC trading activities, 99% of Bitcoin spot transactions in China involved USDT. At that time, Philip Gradwell, chief economist of Chainalysis, said:

"People should pay more attention to the price formation within the large Asian exchanges. For example, OTC brokers may provide a lot of liquidity there. It may move very quickly."

The drop in USDT prices may suggest that there are fewer Bitcoin buyers from China, as the vast majority of USDT trading activity comes from Chinese users.

However, we can also interpret the decline in USDT prices in the opposite way. In the crypto market, when investors want stability, they generally turn to stablecoins. Therefore, USDT can be regarded as sideline capital held by investors waiting for an opportunity to re-enter the market. When they re-enter the market, the price of USDT will fall as investors will sell USDT to buy BTC or other crypto assets.

USDT’s price and premium are among the various data points that analysts consider when assessing Bitcoin price trends. USDT’s data can be used to support arguments for a price rally or pullback, depending on a variety of technical and macro factors.

Source: longhash