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As allegations from the New York Attorney General surrounding Bitfinex’s “cover-up” of an $850 million loss of funds have shaken crypto markets, a large premium on Bitcoin and other high-cap altcoins has taken hold on exchanges using USDT as a trading pair – particularly on Bitfinex.
The news sparked a huge jump in the “Tether risk premium,” a measure of how much the market views Tether as riskier than USD when trading Bitcoin.
When the news broke last Thursday, April 25, markets reacted strongly, with the Bitcoin price dropping over 5%. Interestingly, however, on Bitfinex and other exchanges using Tether , there was a sizable surge in the price of Bitcoin. Sellers rushed to shed their USDT – as concern mounted about Tether and Bitfinex’s solvency. It is thought to be especially high on Bitfinex as traders are buying Bitcoin to withdraw their funds via the more reliable Bitcoin blockchain rather than attempting fiat withdrawals using Bitfinex’s strained banking network.
Looking at the chart we can see the clear difference in the price of Bitcoin on Bitfinex and other exchanges with no ties to Tether, such as Coinbase and Bitstamp. At the time of writing, if you were to buy a Bitcoin on Bitfinex you would pay $300 more than on Coinbase or Bitstamp. Yesterday, this premium hit a high of $346 – a risk premium of 6.7% – as shown in the chart.
What’s more, even other Tether-based exchanges such as Binance and Huobi are seeing far smaller premia than on Bitfinex. At the time of writing, both Binance and Huobi have less than a $100 premium over Bitcoin to USD prices.
This isn’t the first time that concerns about Tether and Bitfinex have shifted the markets.
On March 31, 2017, after Bitfinex and Tether lost their banking partnership with Wells Fargo, the premium soared above 8%.
Last year, concerns about Tether’s USD backing, Bitfinex’s banking arrangements with Noble Bank and CFTC subpoenas, caused surges in the Tether premium which hit a staggering $1,000 in October after false rumors surfaced about Binance delisting USDT.
What’s unusual, however, is that these dramatic events last year , in addition to a growing list of rival stablecoins , seemed not to put much of a dent in Tether’s usage. As shown in our March Exchange Review, USDT still accounted for over 98% of trading volume with Bitcoin out of the top 4 stablecoins. Whether the latest news, which may prove more serious, has a more marked effect on Tether’s dominance, remains to be seen.