Tether (USDT) has seen extreme growth since the start of the year. The market cap of the stablecoin has reached $10 billion, according to CryptoSlate data, more than double where this metric started in 2020. Simultaneously, the amount of economic value enabled through the largely Ethereum-based token has gone parabolic.
This ongoing uptick in USDT adoption has raised discussions about the importance of the asset to the broader Bitcoin and crypto market.
Does Tether’s USDT store more value than Bitcoin?
According to Willy Woo, a long-time Bitcoin analyst, there’s a chance there are more dollars supporting USDT than there is supporting BTC.
This may seem illogical: BTC’s market capitalization is almost 2,000 percent that of the leading stablecoin.
But as Woo explained, analysts like Thomas Lee of Fundstrat found in 2018 that for every dollar invested in Bitcoin, its market capitalization grows by $25. Assuming this analysis is correct, that means Bitcoin’s “real market cap,” in terms of dollars invested, is closer to $7 billion.
This discrepancy is what has been dubbed a “fiat amplifier” — and the existence of this amplifier is a byproduct of the liquidity of the crypto market. Analyst Alex Kruger explained on the matter in 2019:
“Invest a relatively large sum in a small asset (in $ terms), where additionally a significant fraction is not liquid (i.e. does not trade, sits off exchanges) => prices skyrocket. Fixed supply compounds the impact.”
Surprising food for thought.
BTC Cap: $172b
Tether Cap: $10b
These 2 caps are different. Every dollar in Tether’s cap stores a dollar (assumes full backing), while @fundstrat calculated in 2018 BTC cap rises $25 per dollar invested.
Tether could be storing more value than BTC.
— Willy Woo (@woonomic) July 22, 2020
Further suggesting USDT may be of more importance to crypto than its low (relative to Bitcoin) market cap implies is the asset’s daily trading volume.
According to CryptoSlate data, $24.35 billion worth of the asset has been traded in the past 24 hours while Bitcoin’s trading volume has been $17.97 billion over that same time frame.
Woo’s takeaway from this is that stablecoins are becoming an increasingly important force in the crypto ecosystem, despite much criticism from many in and outside of the industry:
“Commenters didn’t like these objective data points and missed the point that stablecoins are increasingly used for transmission of funds and securitising trade settlement. It’s not just used for hedging from bearish crypto price action like the old days.”
What’s behind the growth in USDT?
Behind the growth of DeFi is a confluence of trends, as the analyst indicated. Some of these trends are as follows:
- A spike in demand for U.S. dollars
- Increased adoption of decentralized finance
- An increase in investors looking to hedge their Bitcoin and crypto investments through stablecoins
Good for BTC?
All this being said, it seems apparent that USDT is now of crucial importance to the cryptocurrency market and broader industry.
As Simon Dixon, the CEO of BnktotheFuture and one of the earliest Bitcoin financiers, said in a recent interview with Raoul Pal, Tether is now banking the crypto space. Some would even argue that USDT could be the reserve asset of this market, not Bitcoin.
That raises the question: is USDT’s growth good for Bitcoin?
According to Charles Edwards, a digital asset manager, maybe. At the start of the year, he shared the tweet below, writing that “major changes in Tether’s market capitalization have led Bitcoin’s price over the last 1.5 years.” Should this historical trend hold, that means that BTC will soon continue its bull run as USDT’s market cap continues to mount higher.
Major changes in Tether’s Market Cap have led Bitcoin’s price over the last 1.5 years.
5 January 2020 was no different.
A healthy signal.
Keep it printing 🖨️ pic.twitter.com/dfe0dBJzwh
— Charles Edwards (@caprioleio) January 13, 2020