Why is it said that the issuance of USDT cannot drive a bull market?

Editor’s note: This article has been edited without changing the author’s original intention.

Tether, the "money printing maniac" in the currency market, has printed money five times so far this week, totaling 420 million USDT. Has such additional issuance injected enough liquidity into the panic market? Let's look at the trend of BTC. The increase in the past 7 days is 1.09%. In the absence of effective support for long-term growth, it has rebounded from a sharp drop to 3,800 to 7,200 in just half a month. It seems that USDT is indeed the driving force behind it.

So, how high is the correlation between USDT and BTC price trends? Can we enter a bull market as long as we continue to issue more USDT? Let's analyze it objectively based on the data.

USDT purchase BTC spot transaction volume in the past week

Since the 9.4 ban, all channels for depositing fiat currency have been basically cut off. If new users want to enter the cryptocurrency market, they can only buy USDT from OTC merchants with fiat currency, and then use USDT to trade coins and buy BTC or other currencies. Therefore, stablecoins are also one of the biggest differences between the cryptocurrency market and other financial markets. USDT once accounted for more than 90% of BTC's trading volume. So USDT is the main currency in transactions. Can this be verified in data?

(Because there may be a problem of inflated trading volume, we selected the top four exchanges that are not small-sized for investigation. These four exchanges are: Huobi Global/Binance/Coinbase pro/OKEX)

According to the data survey results, USDT, as the main transaction medium in the cryptocurrency circle, is the main currency in BTC spot trading and serves as capital in 85% of transactions on major exchanges. This conclusion is mainly to pave the way for the rationality of subsequent research. USDT, which accounts for such a large proportion of transactions, has become the most important key to studying the impact of cryptocurrency market fluctuations.

Is there a net inflow or outflow of funds in the current market?

From the above two data analysis results, it can be seen that in the past month, most exchanges have been dominated by net inflows of USDT, and the amount of USDT in most trading markets is more abundant than before, especially for Huobi/Binance/Bitfinex exchanges on the rich list, where capital inflows have accelerated.

The recent USDT transfers on the chain have obvious characteristics, with large amounts of funds being transferred from Tether to major exchanges. This shows that the net inflow of funds in the past month is from large investors or reserves of exchanges. However, we cannot yet draw a conclusion as to whether it is large investors or exchanges that are using it to pull the market. At this stage, we can only pay close attention to the signs.

How much USDT is needed to pull the price?

When we analyzed the net inflow of USDT in major trading markets, we found that OKEX had a large amount of USDT transfers after March 12, but it is not certain whether the main force of the short-term investors will exit the market after making a profit.

Back to the question that everyone really cares about, is the current amount of funds in the market sufficient to drive a big market trend?

The conclusion we draw from the data is that the amount of USDT in the market is large, indeed large enough to drive a big market. Although the daily trading volume is relatively stable, the market on March 12 fully demonstrated that there is enough capital in the market, and Tether has been overissuing a lot recently, so there is no shortage of funds in the market.

Since there is sufficient capital, are the conditions met to drive a large wave of market trends?

Market conditions and trading volume in the past month

We have sorted out the spot price and trading volume of BTC. From this powerful sample of BTC, we can basically see whether people are bearish or bullish on the market in the long term. Does the market have enough momentum to soar to the sky with a slight push from big funds?

We also analyzed the specific reasons:

1. Although Tether has transferred a large amount of funds to major exchanges after over-issuance, if the exchanges do not actively participate in counterparty transactions, they will still not be able to release a large amount of liquidity at this stage;

This is easy to understand. When the economy is down, the central bank releases money to commercial banks, but commercial banks are worried that the situation is bad and they cannot recover the debts they lent to enterprises or individuals, so they are unwilling to lend. In the end, the liquidity problem in the market still cannot be solved. Similarly, exchanges do not participate in counterparty transactions simply because of profit. When the market is bad, everyone sells short. Exchanges can only buy more to give money to users, but they have no obligation to do so.

2. Since the chips in the market are mainly concentrated in the hands of large investors and exchanges, the current macroeconomic environment is not good, large investors are mainly on the sidelines, and the market is prone to lack of liquidity;

3. Because the exchange is a market maker system, it must provide counterparties to retail investors. However, in the previous falling market, most retail investors were harvested by large investors, so market liquidity is also very limited.

The above three points are all liquidity crises. Exchanges do not want to be counterparties because of their interests, large investors are waiting and watching the market, and retail investors have already been liquidated... These deep-seated problems cannot be solved by simply issuing unlimited USDT.

But previously, whenever USDT was issued, it would bring about a wave of price increases. Is it possible that the lack of liquidity is because there are not enough USDT in the market? What is the relationship between USDT and the market?

We all know that sufficient funds are necessary to generate a big market trend, but funds are not the only condition for generating a big market trend. Over-issuance of USDT can only provide a basis for the market to rise, but it is not necessarily related to the market rise. Even if the amount of funds in the market is large enough, if there is a lack of liquidity, a big market trend will not be generated for the time being. When the newly issued USDT can enter the hands of everyone except exchanges and large investors, then perhaps the market will regain its vitality.