For Bitcoin, Tether is no longer an ‘on-ramp/off-ramp’ asset

Bitcoin and Ethereum have done well in 2020 to remain the most relevant assets in terms of development and value. While amassing 88 percent of the total crypto market cap, attention and coverage are widely expected, but the significant rise of Tether hasn’t gone unnoticed in the industry.

The largest stablecoin in the market has improved its market cap by a whopping $4 billion since March, ousting XRP on its way to the third position in the crypto rankings. While most of it happened during the recovery phase, the rapid issuance of USDT on the Ethereum blockchain had a huge part to play as well.

A recent newsletter by Crypto Research contemplated some of the reasons behind Tether’s enormous jump in valuation and the wider implications that may carry forward in the future.

According to Pascal Hugli, Chief Research Officer at Schlossberg&Co, a direct correlation between Bitcoin and Tether cannot be positive since, over the past couple of years, Bitcoin’s price has dropped multiple times whereas Tether’s market cap has remained the same or gone up in terms of value and supply.

Hence Tether’s supply in 2020 has not really gone up because it provides an on-ramp into Bitcoin but possibly because it acts as a settlement vehicle between crypto trading exchanges.

If the past few years are taken under observation, trading volume in exchanges for digital assets has significantly improved, and the arbitrage part of the business has become more professional. Therefore, as arbitrage is being conducted more and more, the value of stablecoin assets improves meteorically in the space.

This is possibly what happened during the month of March when the value of Bitcoin plummeted in the industry. Huge arbitrageurs wanted to shift their capital from Bitcoin to a stablecoin, in order to minimize losses and re-invest at a lower price later in the market.

Such sentiment jacked up the demand for Tether, and its market exploded in a period of 30 odd days.

Can Tether impact the monetary value and structure of other assets?

Not at the moment, but the narrative is indeed sliding towards the largest stablecoin. The huge amount of issuance on Ethereum is a prime example.

Although the stablecoin growth does improve the demand for Ether in the space, they are being used only because each stablecoin transaction requires ETH for transaction fees and gas payments.

The monetary narrative of Ethereum would easily take a hit if the increased utilization of USDT continued. USDT is a stable form of an asset that already had the user’s affinity due to its less volatile nature. Hence, even though, a significant distance remains between Bitcoin, Ethereum, and Tether, the stablecoin’s movement in the space largely impacts the top two digital assets.