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The issuance of USDT has surged in recent months. As of the deadline of April 16, 2020, the current total USDT is more than 6.9 billion U.S. dollars. It was only more than 2 billion U.S. dollars a year ago, and it has increased by 3 in about a year. Times more. Especially in the last two months, there has been a skyrocketing. It was only US$5 billion in the middle of last month, and it was close to US$7 billion in just one month.
(Source: http://Tether.io)
Judging from the current development trend, USDT has basically achieved the conformity of products and market demand with certainty. So, why has USDT been issued frantically recently? What is the reason behind it? There are also many readers of Blue Fox Notes asking if this means that over-the-counter funds are entering the cryptocurrency market, and will it cause the price of the currency to rise? According to historical experience, large-scale USDT issuance may cause the price of the currency to rise, but now it seems that the price of the currency is not moving, or even weak. why is that? Just from the observation of Blue Fox's notes, unlike the situation two years ago, the situation is more complicated now. How to understand this phenomenon? The reason that drives USDT's frenzied issuance is that it finds a high degree of conformity between products and market demand. According to the current trend, the market value of USDT will soon become the top three in the entire crypto market. It is no surprise if it can keep pace with Bitcoin and Ethereum in the future. .
Hedging demand
The global outbreak of COVID-19 has not only caused the stock market to fall, but most importantly, it has done unprecedented damage to economic fundamentals. It has caused an unprecedented number of blowouts in the U.S. stock market, leading to an unprecedented wave of unemployment in the United States, and most industries have been greatly impacted.
In this context, the cryptocurrency field, which has always been an independent market, cannot stand alone. Due to the shortage of liquidity, Bitcoin and cryptocurrencies also plummeted, leading to black swan incidents in the crypto field. In an environment of increasing uncertainty, people have a great need for hedging. However, hedging cannot be achieved through volatile Bitcoin and cryptocurrencies. In this case, many people prefer to hold stablecoins to avoid risks. This includes converting cryptocurrencies into stable currencies, which can avoid volatility risks. In addition to USDT, stablecoins such as USDC and BUSD have also increased significantly.
In order to cope with the extreme volatility of cryptocurrencies, many users exchange their cryptocurrencies for stablecoins, which has led to an increase in the demand for stablecoins. As shown in the figure below, there are more than 800 million US dollars of stablecoins lying quietly on the exchange, most of which are USDT. However, the stablecoins of these users are more waiting for opportunities. Stable coins are only a temporary haven.
(Source: TokenAnalyst)
Value transfer demand
Cryptocurrencies are inherently highly liquid, but due to the excessive volatility of cryptocurrencies such as Bitcoin, they are temporarily not suitable for value storage and more suitable for speculation. The stable currency issued based on the blockchain not only has the characteristics of fast transfer of encrypted currency, but also has stability. At the current stage, this makes stablecoins more suitable than Bitcoin as a medium for value storage and circulation.
Some OTC users sell cryptocurrencies and convert them into stable currencies such as USDT, and store them in encrypted accounts instead of converting their funds into legal currencies such as U.S. dollars. In other words, these funds do not enter the traditional legal currency account system. Cryptocurrency accounts are flexible and user controllable. In order to meet the needs of its customers, OTC counters have also generated demand for USDT. The actual scenes also include international remittances and import and export transactions.
The demand for value transfer, coupled with the dual role of hedging demand, has led to a huge increase in the demand for stablecoins. In recent times, the amount of value transfer on Ethereum has been close to that on Bitcoin, and in the value transfer amount of Ethereum, more than 80% of the value transfer is the value transfer of stable currency. From this data, we can also understand why the demand for USDT has soared.