How The Tether Peg Could Predict Raging Bitcoin Volatility


The entire treasury disaster has daring market traders against stablecoins. The result of this has been that more and more investors are chasing the peg of other stablecoins like USDT and trying to see if they can destabilize the coin. The most notable of these was Tether USD, whose peg to the US dollar has seen the most opposition as its peg to the US dollar has been severely challenged. This challenge indicates that there may be more volatility to come.

Step up the rope challenge

One thing to note is that periods of such challenges often arise from periods of intense market pressure and liquidation. This was the market conditions for the last week after the floor tanks were uncoupled. This ultimately leads to significant deviations in the price of stablecoins like USDT and USDC when it comes to pegging $1. Although in this case, the majority of deviations were recorded in USDT alone as USDC held up better in the market.

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Tether (USDT), which has always been under high scrutiny from some in the market, started trading under $1 after the news of floor treasuries broke. This gap will only get wider with time even though the stablecoin will re-peg again. However, the accompanying scrutiny of the stablecoin explains why it is the obvious target of the market.

USDT price chart from TradingView.com

USDT loses dollar peg following UST crash | Source: USDT/USD on TradingView.com

This inadvertently created an opportunity for funds with access to tether redemptions. These funds were able to take advantage of this slight decoherence and likely benefited from it until the digital asset reverted to its 1:1 correlation.

More volatility coming?

On Thursday, the market experienced one of the highest annual volatility trends in the day. This volatility resulted from the heavy selling that rocked the market, although this volatility has since decreased.

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However, with the challenge of pegging the US dollar to the US dollar in the market, there may be more volatility to come. If a stablecoin like USDT, which is currently the largest stablecoin in the market, loses its peg, it will undoubtedly have a worse impact on the market than ground treasuries. Essentially, a decoupling like this could drive the market deeper since more than 50% of all open interest in the derivatives market is based on USDT collateral.

The asset is also involved in most trading pairs of any other stablecoin. So a decoupling could lead to short pressures on the historical level which would fundamentally paralyze the market. Also, an event like this would set back mainstream acceptance for years as more people would become fearful of the market.

USDT ربط peg

Loss of USDT peg could lead to extreme volatility | Source: Arcane Research
Featured image from CoinGeek, charts from Arcane Research and TradingView.com



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