For starters, this article is purely speculative, but the aim of it is to shed some light on the macro market view and sentiment. First off, I am tired of hearing Tether this and Tether that. In this article, I want to clear the air and discuss fundamentals of Tether, the Bitcoin price surge, and what truly is driving the parabolic price shifts we are so used to in crypto. With that being said, buckle up.
Nothing should be considered investment or financial advice. Enjoy the ride.
Initial Bitcoin Pump
Let’s draw back to April 2nd when one large investor entered the market. Specifically, this was around the time when there was news circulating about the diminishing OTC supply for Bitcoin.
Bitcoin’s price right before this pump was hovering around $4,000 and miners were struggling to stay afloat at these levels. Due to the low price, miners were forced to sell as many Bitcoin as possible to simply keep their doors open. This diminished their reserve supplies for months throughout the bear market, and this seems to be where the tables flipped.
Investors, lacking patience, could not find enough Bitcoin for an OTC buy and decided to hit the exchanges instantly pumping Bitcoin close to $5,000.
Bitcoin in the Clear
Regardless of the price jump, there was still a substantial lack of BTC supply on the OTC market. Through April 6th to May 9th it seems this started to continually impact the Bitcoin price. Bitcoin grew organically all the way to $6,000 where a herd of sell orders crowded around the targeted volume resistance. This resistance level, $6,400, was projected to deny Bitcoin and send it plummeting back down around $5,000.
To the surprise of the entire market, Bitcoin broke through $6,400 and headed straight to $8,000. These levels were not expected to be reached until the end of 2019 by a majority of the market. If you notice, Bitcoin then hovered around this level through June 12 almost as if saying, hey I am here to stay.
My guess is that a majority of investors got liquidated on margin trades, their sell orders triggered around $6,400, and FOMO started to accumulate around the market. With Bitcoin professing stability around the $8,000 levels for weeks, these investors re-entered the market further inflating the price to breach that $9,000 level.
Fear of Shorting
With the power level of BTC over 9,000, there was little confidence for investors and speculators to short. In a continual sharp move up, Bitcoin had almost no sell pressure to cut through as investors surged into the market. Regardless of Bitcoin’s search volume on Google, money moved into the market that was not there previously here. This is a clear indicator that the exposure of the market has reached a stable level, and the money entering the market is no longer directly correlated with such metrics.
With Bitcoin pushing upward, the price went as high as buy pressure would take it. This mark was just shy of $14,000 which posts substantial gains of over 3x in less than 3 months.
Tether Not Responsible
Some profess that surges like this are still due to or supported by Tether. Let’s analyze Tether first then. If we take Tether’s price value as a formulaic approached, the printing of the new tokens can be explained easily.
We can see that: Token Price = Market Cap / Circulating supply
In addition, the price per token of Tether is obtained by the average of all the assets it is traded across. Simply, as the assets it trades for increases, so does it’s inherent value incrementally.
From our equation we can see: Token Price is increasing which goes against the purpose of a stable coin. In order to correct this, the circulating supply must then be increased to circumvent the aggressive upward pressure to the token value. As the circulating supply increases, the token price will naturally deflate back to a level $1 stablecoin through natural supply and demand.
By result, the market cap is an after effect of the change in the other two metrics. In reality, the market cap is only representative of the current circulating supply of Tether.
How Does Tether Then “Back” Each Token One to One
If we look back and remember the change in their terms and agreements where Tether is going to be backed by fiat reserves or assets. The word assets right there is how they can facilitate to “print” new tokens while still complying with the same terms and agreements.
For instance, if in their assets they have Bitcoin and the price of Bitcoin doubles, then they can effectively print 2x the original amount of Tether that was backing the original Bitcoin price. This can be done repetitively every time the market surges. Typically, these newly printed Tethers will be pushed into the market by fulfilling future issuance requests or other indirect avenues.
Tether is Still a Volcano
With the arising problems every few months, Tether is still considerably a accident waiting to happen. They have the power to push tokens into an inflated market continually if they seem fit, they do not have to legally redeem or provide any exchange for tokens issued ever based on their original clauses, and they are currently edging closer to holding more “assets” instead of fiat reserves for instant liquidity.
This is the same scenario which eventually caused the 2008 financial collapse and will eventually provide the same outcome here. No, Tether is not responsible for the recent pumps in the market from my opinion, but they are responsible for passive market manipulation, lack of transparency, and being a bad as the banks at the end of the day.