Tether has long been used as a flight to stability when Bitcoin crashes. The influx of capital reentering the cryptocurrency market also helps to drive up valuations during bull runs.
With over $9 million sidelined and climbing, could all of this capital be waiting to enter Bitcoin at the first sign of a breakout? Or has Tether developed new use cases that are fueling its tremendous growth in 2020?
Tether’s Unstoppable, Growing Market Supply Dominance Over Crypto
Cryptocurrency stablecoins like Tether, USD Coin, and Paxos Standard all are tied 1-to-1 to the dollar. Each asset is backed by a corresponding dollar, or an equivalent valued asset.
By acting as a stable peg to the dollar, these assets have long been utilized as a safe haven during crypto market volatility. During drawdowns – the majority of the last three years – stablecoins are especially valuable to crypto traders.
Moving capital from Bitcoin, Ethereum, Ripple, and other altcoins to stablecoins can protect wealth from loss. It also keeps capital in the cryptocurrency market, rather than cashing out to fiat.
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All of this capital remains on the sidelines waiting for an uptrend to begin, then crypto traders will use the USDT to take positions.
If all of this USDT is sitting waiting on the sidelines to make its way into BTC, it could result in a major boost to Bitcoin’s next bull run.
The Tether market cap has now surged past $9 billion. In the comparison chart below, the growth in Tether’s market cap has begun to outpace growth in Bitcoin price.
Bitcoin BTCUSDT Tether Market Cap Comparison | Source: TradingView
Is This Money Sidelined Waiting For Bitcoin, Or Has USDT Found A New Use Case?
Over time, stablecoins have become more valuable than the dollar they are tied to. Dollars are stable, however, they are often costly to move and require an intermediary to do so.
Because stablecoins are cryptocurrencies built on blockchains like Omni-layer Bitcoin, Ethereum, and others, they make moving money fast, easy, and cheap. And because they are tied to the dollar, the stability that earned these assets their names remains.
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This gives them a flexibility that the dollar cannot yet match, and is perhaps becoming a strong use case outside of a safe haven during downtrends.
Tether’s growth may be less tied to Bitcoin than it once was. Regardless of any bullish moves in Bitcoin, much of the USDT supply could remain parked there for whatever reason.
However, not all of it would remain in the stablecoin, and at least a portion would flow into the first-ever cryptocurrency. Along with new fiat coming in, institutional money finally entering the market, any inflow of stablecoins could be the final ingredient missing for Bitcoin’s next bull market.