After the recent market rally led by Bitcoin, Chinese crypto traders have to pay an additional 3%-5% on over-the-counter (OTC) marketplaces for the stablecoin Tether USDT to avoid the ban on crypto trading. Zhao Dong, an early bitcoin adopter and one of China’s biggest OTC traders, recently took it to Weibo (the Chinese equivalent of Twitter) that the cause of USDT premium surging is USD capital inflow, instead of the conspiracy that Tether is inflating USDT to push the price up.

The price of USDT hit over 7 yuan on OTC platforms at one time, up more than 4 percent against the US dollar. This USDT premium surge over the past few days has gained much attention. Whilst, the fact that its issuer Tether printed more than 60 million USDT on April 9 has again sparked great discussion in the crypto community.

In response to investors’ suspicion of Tether inflation, Zhao explained the premium in USDT on Weibo and asked capable readers to translate it into English for the Americans, claiming “(let’s see) who is the conspiracy theorist behind it? I don’t know whether it is the Americans, but I’m sure it’s the USD capital.”

“So let me tell you a little bit about where the plus or minus premium for usdt comes from. Right

The biggest exchange in America is coinbase, which trades in dollars. In addition to coinbase, most exchanges with large trading volume are usdt trading. Since BTC and usdt can flow freely between exchanges, the price difference is very small. Assuming that the market is stable, there is no difference between the prices of usd and usdt. Btcusd = btcusdt

At some point the market starts to recover, goes up, and the otc money starts to come into the market. Coinbase is a compliance exchange, so the usd deposit is very smooth, while the usd deposit through usdt needs to be converted into usdt first and then deposited into the exchange, so the usdt will be slightly delayed in price transmission, so the usd exchange price is higher than the usdt exchange price. If there is a lot of dollars to buy, coinbase goes up first and usdt goes up later. At this point, the coinbase price is higher than the usdt exchange price. If btcusd>btcusdt, because BTC is free flowing, that means usdt is in a positive premium to usd.

This arbitrage space will prompt the brick moving party to sell BTC from coinbase to usd, and then use usd to buy usdt, thus facilitating the issuance of usdt.

A negative usdt premium would prompt Tether to take back the usdt and destroy it.

So:

Buying a lot of BTC on the usd exchange will result in a positive usdt premium

Heavy selling of BTC on usd exchange will result in usdt negative premium

Large purchases of BTC on usdt exchanges result in a negative usdt premium

Usdt exchange to sell a lot of BTC will lead to usdt positive premium This would explain why the usdt still had rights issues during last year’s bear market, as the usdt exchange sold BTC first.

It could also explain why usdt is also a positive premium in a bull market, since usd trades at all positive premiums.

When the americans spread rumors about usdt, the americans first sold a lot of BTC, which would cause a large number of people to withdraw USD from Tether to arbitrage, resulting in the collapse of usdt. Why did Tether dare not use usdt to buy BTC pull plate? If they go and buy the BTC pull-up, it will cause a negative usdt premium, which in turn will cause a run on the user that will further cause the usdt crash. So most of the people who spend all their time spreading rumors about Tether and usdt really don’t understand trading, just psychosexuality, it’s like eunuchs don’t understand sex, you don’t understand trading. A few have ulterior motives.” Translated by Lianbimao (链币猫).

Another possible translation from Shanmujinke (山木今可)

Though he tries to convince investors to believe US dollar inflow and the arbitrage space of BTCUSD against BTCUSDT is the reason behind the price surge of USDT, many don’t buy it claiming USDT is mostly played by Chinese traders.

What do you think about Zhao’s explanation? Let us know in the comments below.