Since 2020, the additional issuance ofUSDT has been much faster than in previous years, driving the market value ofUSDT to skyrocket. As of April 2022, the market value of USDT has exceeded 82.7billion US dollars, ranking third in the market value of the encrypted market,second only to Bitcoin and Ethereum, and is currently the stablecoin with thelargest market share. USDT provides extremely strong liquidity, its dailyturnover rate is usually as high as 200% to 500%, and the daily transactionvolume can reach 50 billion to 100 billion US dollars.
The stable currency USDT serves as animportant bridge for funds to enter and exit the crypto market, and changes inits demand can reflect investors' attention to the crypto market. An importantindicator to detect changes in USDT demand is the "USDT OTC premium".
Whatis USDT OTC Premium?
Intheory, the price of USDT should be equal to the price of USD, but in practice,USDT is always higher or lower than the price of USD, that is, a premiumappears. USDT OTC premium, that is, the ratio of OTC market price to USD. Ingeneral, prices are affected by supply and demand, so excessive demand fordigital asset purchases tends to make this indicator higher than 100% of thefair value, which is a positive premium; conversely, when crypto market demandis sluggish, lower USDT’s Market quotes will result in a discount rate of 4% ormore for this indicator, known as a negative premium. It can be seen that theover-the-counter transaction premium of USDT can reflect the retail purchasevolume of digital assets and is a reference for the short-term market capitalvolume and activity. In short, the more people who buy USDT, the higher theUSDT price, and there is a positive premium. vice versa.
Historical data shows that most of the USDT OTC premiums in the bull market arepositive premiums. For example, in the 2017 bull market, the USDT OTC premiumrate was as high as +5.76%, and OTC funds continued to pour into the cryptomarket through USDT. In a bear market, USDT generally has a negative premium.For example, from 1:00 p.m. to 2:30 p.m. on October 16, 2018, USDT/RMB felldirectly from 6.70 to 6.20, with a premium rate of -8%.
TheUSDT OTC premium rate is related to transaction costs. How to check?
Whenthe market goes down sharply, many investors need to convert Token into stablecurrency or legal currency to avoid risks. At this time, it mainly depends onthe change in demand. USDT may have a positive premium or a negative premium.
For example, on the day of the March 12 crash in 2020, the market fell intoextreme panic. Many people were eager to exchange all kinds of tokens they hadheld for stablecoins for hedging, while other OTC investors were eager to enterthe market to hunt for dips, which led to USDT has a premium of 14.29%, and atthe same time, the stable currency liquidity of almost all decentralizedexchanges on the day is almost exhausted. Since this time node, USDT has beenissued in large quantities, and these coins have mainly flowed to centralizedexchanges. When the amount of additional issuance of USDT is sufficient, USDTbegins to show a negative premium in the legal currency area.
Since the inflow and outflow of funds on different platforms will be different,the premium of USDT will also be different.
Of course, no indicator is omnipotent.When making investment decisions, other factors need to be consideredcomprehensively, such as fundamentals, technical indicators, economic forms,and local wars.
Afterthe premium appears, how does USDT keep the currency price stable?
Asan indicator, the USDT OTC premium can reflect market conditions. At the sametime, as a real price fluctuation, it will also have an impact on the marketoutlook. A positive USDT premium will lead to an increase in the price ofmainstream coins, and fewer people will sell USDT for withdrawal, which is alsogood for the market; on the contrary, a negative premium is generallyunfavorable to the market and will lead to a large amount of funds fleeing.
Generally speaking, it is normal for USDTto have positive and negative premiums, and any normal market price willfluctuate, but as a stable currency, "stability" is the firstpriority of USDT, so USDT has also designed a bias correction mechanism.
First of all, USDT is pegged to the US dollar in the real world, and people canuse USDT to exchange 1:1 with the US dollar, so when there is a large premium,the market will spontaneously carry out arbitrage until the price stabilizes.
In addition, Tether will also stabilizethe price of USDT by adjusting the supply: generally, when the USDT has apositive premium, it can be observed that a large amount of USDT has beentransferred out of Tether's account, which is interpreted by the market as"additional issuance", which is an after-the-fact behavior; On thecontrary, when the USDT has a negative premium for a period of time, Tetherwill choose to recycle and destroy a part of the USDT to ensure the ecologicalbalance of the trading market.
Since 2015, USDT has been issued morethan 70 billion US dollars, and the total market value of the encrypted markethas reached a maximum of 3 trillion US dollars. The relevant trends of USDT areundoubtedly a major weather vane in the market, which deserves investors’attention at any time.