The imbalanced peg between the US Dollar and Tether LLC’s USDT has resulted in a $300-spread in Bitcoin price.
At the press time, the aggregated Bitcoin-to-dollar exchange rate on non-Tether exchanges is approximately 6430-fiat. Meanwhile, on Tether exchanges like BitFinex, the same forex rate is above 6700-fiat. The strange trading activity, which started surfacing on Monday, has seen traders getting their money out of USDT however possible.
The exchanges that offer USDT liquidity, including BitFinex and Binance, therefore experienced a massive drop in USDT value against its quote currencies, which is mainly Bitcoin, USD, and Ethereum.
BTC/USD value on Coinbase GDAX
Simultaneously, the exchanges that didn’t feature USDT experienced their Bitcoin rates driven by increased arbitrage activity. Traders purchased the digital currency at a lower price, transferred it to the wallets of Tether-enabled crypto exchanges, and later shorted their holdings either for other stablecoins, the USDT itself, or the dollar.
The USDT decline itself surfaced owing to growing community mistrust of Tether after its prime exchange BitFinex dropped Noble Coin as its banking partner, eventually becoming insolvent, according to reports. The exchange, however, refuted the rumors and said its withdrawals were working fine.
Meanwhile, the community continues to believe that Tether does not have an adequate amount of dollars to back its USDT supply, about which BitFinex, Tether’s partner exchange, is already aware. And while USDT is one of the highest volumed cryptocurrencies, the exchange couldn’t handle the capital flight towards Bitcoin, resulting in its stark drop and Bitcoin’s steep rise.
BTC/USD up over $300 on BitFinex
BitFinex in its latest statement clarified that traders on its platform trade Bitcoins against the dollar, not USDT.
“USDT on Bitfinex is used as a transport layer, used if a trader wishes to deposit or withdraw in e.g. Omni USDT or Ethereum USDT. Until the trader specifically chooses to transport their fiat in Tether-denominated USD, all their fiat holdings on Bitfinex will be held in the form of fiat USD.”
Believing what BitFinex stated, traders were genuinely moving their fiat holdings into Bitcoin on its trading platform, buying the digital currency at a prime value. Hence, the Bitcoin-to-dollar exchange rate went up enormously.
The spread between Tether and non-Tether exchange is expected to stay as the confusion mounts. The community has asked Tether, LLC and BitFinex both to have their balance sheets audited and end the FUD once for all. The question is now whether traders are exchanging their digital assets for real fiat funds or for a currency that may or may not be artificially pegged to the dollar.
Tether and BitFinex haven’t confirmed whether they would go through an independent audit or not.