October 25, 2020

Bitcoin volume unaffected by Tether’s (USDT) market dominance — Data shows

Tether’s (USDT) stablecoin has been the leading base pair for cryptocurrencies for over eighteen months. 

This is a rather impressive feat given the ongoing court case with the New York Attorney General and the other frequent rumors that USDT is not sufficiently backed or subject to regulators’ reach. 

USDT has also been the dominant stablecoin in China even though the country banned cryptocurrency exchanges in 2017. This is because large exchanges like Binance, Huobi and OKEx turned to the stablecoin as their leading base pair. 

It’s also worth noting that competitors like USD Coin (USDC), TrueUSD (TUSD), and Paxos Standard (PAX) had a combined capitalization of $520 million in June 2019. During the same period, USDT had already amassed a market cap larger than $3.1 billion.

Over the past 15 months, Tether’s market cap grew to $15.7 billion, while its four largest competitors reached $4.1 billion. Regardless of all the USD backing controversies, USDT has held a nearly 80% market share of all fiat-backed stablecoins.

A nearly identical story is noted in trading volumes, where Tether dominates with a 75% lead. 

Consolidated crypto volume by base pair

Consolidated crypto volume by base pair. Source: CryptoCompare

Data from CryptoCompare shows USDT holding a nearly 73% volume market share over the past three months. Before investigating further, it should be mentioned that numbers will vary according to each data provider, as some exchanges are often excluded due to a lack of transparency.

Despite these indiscrepancies, CryptoCompare Head of Research, Constantine Tsavliris, explained that:  

“In terms of Bitcoin trading into USDT or other equivalent stablecoins such as USDC or PAX, we haven’t seen a significant shift in terms of volume.”

A stablecoin on-ramp is irrelevant to Bitcoin price

Most traders have grown accustomed to using Bitcoin (BTC) as the primary gateway to cryptocurrencies. This solution might have been the only, or at least, the most liquid for most traders in 2017 or 2018, but as the stablecoin market grew, volumes on altcoin paired to USDT soared.

A broader offering of altcoins pairs followed the higher stablecoin volumes, and as Coinbase, Huobi, and Binance launched their own stablecoins, this trend accelerated.

It would be wrong to infer that Bitcoin’s diminishing use as the main on-ramp to cryptocurrency is detrimental to its price. Those who acquire BTC as a pass-through might have increased its volume, but used the same amount to sell it later in exchange for altcoins. 

Moreover, even if one uses stablecoins as the leading on-ramp solution, eventually, part of this flow will spill to Bitcoin. Furthermore, most crypto assets are not direct competitors to BTC’s store of value and scarcity propositions.

Chainlink inflow and outflow past 24 hours

Chainlink inflow and outflow past 24 hours. Source: Coinlib.io

For example, the chart above shows $26.6 million in outflow from Chainlink (LINK) to BTC over the past 24 hours. A similar trend occurred with the remaining altcoins, confirming that Bitcoin is not losing volume as stablecoins establish themselves as the dominant base pairs.

By analyzing the combined cryptocurrency market volume, one can determine whether stablecoins have been increasing overall market share or simply taking markets away from Bitcoin.

Crypto total market 7-day average volume, USD billion

Crypto total market 7-day average volume, USD billion. Source: TradingView

The chart above is probably astonishing even for traders who experienced the late 2017 bubble. The $36.6 billion January 2018 daily average peak might have been excessive at the time but it’s rather shy when compared to the current $100 billion level.

Regardless of whether faked volumes impact this view, we can see that, proportionally, there has been a sizable increase. This volume growth coincides with the stablecoin issuance from $3.6 billion in June 2019 to the current $18.9 billion.

Volume dominance is a key factor

Michael Saylor, the co-founder and CEO of MicroStrategy, believes that BTC’s primary use is reserve currency. Therefore it does not compete with tokens like Ethereum (ETH) and stablecoins. 

Unlike traditional Bitcoin dominance data based on market capitalization, Saylor’s analysis only includes coins based on proof-of-work mechanisms.

Even if one compares Bitcoin’s volume to a broader asset base, it matches the top 20 altcoins’ sum when analyzing transparent volume. 

30-day accumulated transparent volume, USD

30-day accumulated transparent volume, USD. Source: Nomics

Keeping the above data in mind, it is safe to say that stablecoins are not competitors to Bitcoin in market capitalization or volumes. 

Tsavliris explained that he believes this is the case because:

“For the top altcoins in the last few months, volumes aren’t necessarily moving away from BTC markets. Rather, they are offered and utilized in tandem with USDT markets. USDT markets are attractive because they generally offer superior liquidity compared to BTC markets across most exchanges.”

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