This is expected. Tether is pegged to $1, BTC is not. In short, higher crypto prices means more tether.
Perpetual futures contracts are also a big part of the market. They are the most common derivatives on crypto assets. It isn't always BTC, but BTC is the biggest asset in the space.
Derivatives in general need to be denominated in something. Tether is the most accessible on exchanges outside the US (e.g. Binance). These contracts settle in the Tether stablecoin, not the contract's underlying. As all crypto asset prices go up, those contracts need to be settled in more Tether.
When one party shorts a derivative, a counter-party needs to long the same derivative. Same thing happens with non-crypto derivatives. In the end, they cancel each other out, but the total amount of Tether would increase as the asset value increases. That money could come from other assets or USD.
On the exchange-side something like this might happen...
party 1 sends USD to Exchange > longs BTC contract > USD collateralizes contract
party 2 sends ETH to Exchange > shorts BTC contarct > ETH collateralizes contract
If ETH drops in value as it relates to USD or party 2's contract expires out of the money, the exchange would likely give party 1 the value of the contract in tether.
Similar misunderstandings happen in the stock market. People will point to the notional value (amount in $) of margin debt, but ignore the total value of the market. Of course, higher debt would be needed to collateralize a more expensive asset (e.g. SPX).
Also, when sending non-USD currencies to an exchange, I would guess the exchange is likely to convert them to Tether, or at least gives the option. I wouldn't want to have YEN in my account as the value sinks when I have a Tether backed contracts. That may be another source of new Tether.
> This is expected. Tether is pegged to $1, BTC is not. In short, higher crypto prices means more tether.
What? Tether is supposedly minted in response to fiat deposits. They accept real dollars and give Tether IOUs in return.
The concern is that Tether minting seems to generate BTC price spikes. The story goes that investors are giving their money to Tether, which gives them Tethers, and then they take the Tethers and buy BTC. Nobody can seem to explain why these people aren’t just giving their money to exchanges and buying BTC without the extra steps, though.
piqi|3 years ago
Perpetual futures contracts are also a big part of the market. They are the most common derivatives on crypto assets. It isn't always BTC, but BTC is the biggest asset in the space.
Derivatives in general need to be denominated in something. Tether is the most accessible on exchanges outside the US (e.g. Binance). These contracts settle in the Tether stablecoin, not the contract's underlying. As all crypto asset prices go up, those contracts need to be settled in more Tether.
When one party shorts a derivative, a counter-party needs to long the same derivative. Same thing happens with non-crypto derivatives. In the end, they cancel each other out, but the total amount of Tether would increase as the asset value increases. That money could come from other assets or USD.
On the exchange-side something like this might happen...
party 1 sends USD to Exchange > longs BTC contract > USD collateralizes contract
party 2 sends ETH to Exchange > shorts BTC contarct > ETH collateralizes contract
If ETH drops in value as it relates to USD or party 2's contract expires out of the money, the exchange would likely give party 1 the value of the contract in tether.
Similar misunderstandings happen in the stock market. People will point to the notional value (amount in $) of margin debt, but ignore the total value of the market. Of course, higher debt would be needed to collateralize a more expensive asset (e.g. SPX).
Also, when sending non-USD currencies to an exchange, I would guess the exchange is likely to convert them to Tether, or at least gives the option. I wouldn't want to have YEN in my account as the value sinks when I have a Tether backed contracts. That may be another source of new Tether.
PragmaticPulp|3 years ago
What? Tether is supposedly minted in response to fiat deposits. They accept real dollars and give Tether IOUs in return.
The concern is that Tether minting seems to generate BTC price spikes. The story goes that investors are giving their money to Tether, which gives them Tethers, and then they take the Tethers and buy BTC. Nobody can seem to explain why these people aren’t just giving their money to exchanges and buying BTC without the extra steps, though.
ves|3 years ago
dontknowwhyihn|3 years ago
Kranar|3 years ago
ves|3 years ago
RealityVoid|3 years ago