Bitcoin halved, but the biggest winner is not BTC

At 3:23 am on May 12, Beijing time , Bitcoin reached a block height of 630,000, the block reward was reduced from 12.5 BTC to 6.25 BTC, and the third block reward halving in Bitcoin history has occurred (the first two The second halving occurred on November 28, 2012 and July 10, 2016 respectively.

With the arrival of bitcoin halving, the price of bitcoin also fluctuated, but the market value of stablecoins only increased. According to DAppTotal data, the total market value of stablecoins exceeded US $ 9.5 billion last month, of which Tether (USDT), the oldest, largest and most widely used stablecoin, gained more than US $ 1 billion in value in April alone.

Investors “hoard” stablecoins before halving

Ganesh Natraj, an assistant professor of finance at the Warwick Business School in the UK, told Decrypt that the expectation of a halving of Bitcoin may drive the issuance of stablecoins.

Natraj recently published a paper with UC Berkeley professor Richard Lyons to discuss the impact of stablecoins on the macro cryptocurrency market. He said that the issuance of USDT may be driven by “expectations for Bitcoin prices later this year, and as the halving comes, investors may hoard USDT.”

Cryptocurrency trading and analysis company Messari believes that as traders are adding stablecoins to buy bitcoin on the exchange, the stablecoins deposited on the exchange this year are as high as $ 3 billion, setting a historical record for stablecoin reserves.


Of course, some traders are betting that the price of Bitcoin will rise after halving. Dan Morehead, CEO of Pantera Capital, a blockchain investment company, wrote in a letter to investors in April: “If the amount of newly supplied bitcoin is halved and all other conditions remain unchanged, the price of bitcoin will rise. “Morehead pointed out that on the one hand, the Fed used” infinite “quantitative easing to curb the financial crisis caused by the coronavirus, and on the other hand, paper money has become a vector for disease transmission. In this context,” Bitcoin is more than half likely to rise, and quickly rise.”

Will the issuance of stable coins affect the price of cryptocurrencies?

In addition to the approximately US $ 2.7 billion Tether stablecoin newly issued in 2020, blockchain financial compliance company Chainalysis found USDT that moved on-chain or between cryptocurrency wallets in the past 12 months to March Trading volume increased by 250%.

A large part of this increase is due to transactions settled on the Ethereum (ETH) blockchain, which accounted for 90% of all USDT settlements in March. In fact, according to Messari, the value transfer of ETH reached the level of BTC for the first time in April.

The growing demand for BTC reflects the rising demand for ETH, global foreign exchange, and the dollar in the entire capital market.

Although the price of BTC has soared by more than 20% in the past month, Ganesh and Lyons found that there is no systematic evidence that the issuance of stablecoins will affect the price of cryptocurrencies. Their research contradicts a controversial view that Tether’s issuance played a role in manipulating the price of Bitcoin. This view is the conclusion of a widely cited University of Texas study in 2018 .

They think the opposite is true. Ganesh and Lyons wrote, stablecoin issue “endogenously in response to a deviation between the secondary market exchange rate and the fixed exchange rate.” In other words, the issue crypto stablecoin is the currency changes in the market’s response, stablecoin in the currency encryption The economy plays a role of hedging.

Matthew Graham, CEO of Sino Global Capital, a Beijing-based blockchain investment company, agreed with this statement. He said: “Overall, we believe that predicting the price of Bitcoin based on stablecoin indicators is not easy. There is a correlation between them, but these effects are overwhelmed by other factors, such as the investor ’s halving Views and actual supply of new bitcoin, etc. “

However, in a broad sense, Graham said that he is moderately bullish on the price of Bitcoin after being halved, but this bullishness is not directly related to the excessive growth of stablecoin usage (and its popularity as a safe haven).

Stable currency is a safe haven

The core of the stablecoin safe haven story is dollarization.

Since the last century, the US dollar has been the global reserve currency and the safest and most convertible choice among various legal financial instruments. The continuing economic chaos caused by the COVID-19 pandemic has led the world to seek dollars as a refuge. The cryptocurrency market is no exception-people have fled to stablecoins.

Although Tether occupies the largest share of stablecoin market activity, competitors such as USD Coin (USDC), Binance USD (BUSD) and Huobi ’s HUSD tokens supported by the Exchange Alliance are also gaining more and more attention from traders. .

What Tether and its emerging rivals have in common is their integration with cryptocurrency exchanges. Messari wrote: “It is important to be close to the liquidity hub.” Another common factor is that the three most powerful stablecoins are closely connected to the Asian market.

Tether ’s parent company iFinex is headquartered in Hong Kong, while Binance is led by a Chinese-born CEO and receives most of the BTC inflows from Huobi, a Singapore exchange established in China. The second largest BTC traffic between exchanges is just the reverse traffic brought by the leader. According to the 2019 data of cryptocurrency tracking service Token Analyst, about 1.2 billion US dollars flowed from Binance to Huobi.

Darius Sit, managing partner of Singapore-based OTC trading company QCP Capital, said that the flow of stablecoins is also returning to the Asian market with this reverse flow.

Asian market promotes the “application start” of stablecoins

Sit told Decrypt that his company is increasingly seeing stablecoins used in financial transactions in Asian trade. Sit said: “The average daily transaction volume of stablecoins reaches between 10 million and 20 million US dollars. 90% of our spot trading business is stablecoins.

He added that companies such as Malaysia and Indonesia are using stablecoins to pay their suppliers in China and transfer funds through ETH wallets.

Chainalysis data also supports this. The company told Decrypt that in the past month, most of the demand for Tether has come from institutional traders or off-exchange transactions that may be located in China.

Although 75% of UDST / ETH’s transfer activities are less than US $ 2,000, each large-scale transaction of more than US $ 100,000 accounts for 65% of all market transactions. Chainalysis spokesman Maddie Kennedy said: “This shows that the demand for Tether may come from a large proportion of professionals, they may come from China, where there are no regulations allowing citizens to enter the cryptocurrency market.”

Jeff Liu, co-founder of Chinese blockchain security company Peck ShieldInc, agreed. He said: “Most stablecoin users are in China and Asia, and their usage has been accelerating in recent months.”

Sit believes that this shift is driven by “monetary liquidity.” After the COVID-19 pandemic, companies operating in the Asia-Pacific region encountered a freeze in banking activities. Sit said that they have turned to stablecoins, which enable more instant, cheaper, and smoother business-to-business payment operations throughout Asia.

Liu said: “Stable coins are still mainly used for crypto transactions and to promote capital flight.” The 2019 Peck Shield report found that cryptocurrencies contributed to approximately US $ 11.4 billion of Chinese capital flight last year, most of which are denominated in Bitcoin and Tether . He added that most of these funds went to countries with looser capital controls, such as the United States, Japan and Singapore.

Despite the increase in the adoption rate of stablecoins in Asia, Sit believes that halving Bitcoin “may not have that much impact.” With the further reduction of block rewards, it is more difficult for mining unions with fewer resources to compete with industrial-scale opponents.

Sit predicts that the result will be this: Under the new cryptocurrency economy, miners who are too costly may shut down their miners and liquidate their own assets, thus causing downward pressure on the price of Bitcoin. He also pointed out that “miners with more resources may conspire to further lower prices in order to accelerate the demise of small businesses and seize more network shares.”

In any case, the increase in the use of stablecoins in Asia, coupled with the first major test of the People ’s Bank of China ’s electronic yuan Crypto currency that will start this week, shows that in the cryptocurrency market, “the whole world is one step behind China.” Sit This concludes.

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