Tether Printer go Brrr, but Why?

Fresh USDT minting boosting supply of Tether can occur for a number of reasons, both bullish and bearish, for Bitcoin and crypto.

Tether printer go brrr

The simple answer to why Tether mints new supply is that demand for Tether goes up. This can happen directly with Tether or indirectly through people acquiring more Tether which leads to those directly at the Tether window to mint new supply to satisfy demand.

USDT can be held by anyone with an Ethereum, Bitcoin (Omni), EOS, Bitcoin Cash (SLP), Tron, Algorand address. Once USDT has been minted at Tether it can be sent around to any address with no checks necessary. This makes it a highly flexible alternative to getting a USD bank account, which is unattainable by many traders especially those in Asia.

This is why USDT is so popular on platforms like OKex, Huobi, Binance — it helps to bank the unbankable for USD and make for a high-velocity way to settle USD balances 24/7 in the 24/7 market of crypto assets.

With respect to Bitcoin and crypto market sentiment, one could take either a bullish or bearish angle on new Tether supply generation:

Bullish

• On-ramp: People with fiat send USD to Tether to get USDT for the purpose of buying BTC or other crypto assets
• Crypto ecosystem expansion: Tethers rarely get “destroyed”. As the crypto markets grow so too grows Tether. So generally higher demand for USDT from people selling out of crypto can generally be assumed to be a form of future “potential demand” that gets pent up over time. That is, holders of Tether are just waiting some period of time — days, weeks, months — to get back into real crypto assets — buying bitcoin or shitcoins.

Bearish

• Fear trade: scared crypto asset holders sell into USDT to get some protection. This is either to hedge against crypto market downside or just temporarily derisk and often occurs on markets like Binance, OKex, and other Asian exchanges. The increase in selling into USDT is a form of indirect net demand for USDT, which can drive direct USDT supply creation to meet aforementioned demand.
• USDT:USD arbitrage: if above factor is pushing USDT into a premium versus USD (on markets like Bitfinex, FTX, Bittrex, Kraken and BTSE), it becomes more attractive to get into USDT to arbitrage the dislocation in market prices.
• OTC flow: people (mostly Asians who have high $ demand) selling crypto on OTC desks tend to demand settlement in Tether rather than having to deal with USD bank accounts. They don’t trust traditional banks offering USD accounts so they prefer the discrete way of Tether to hold USD. A desk settling this trade might not have the USDT available and would need to use its normal USD to mint USDT to complete it.

Neutral/Other

• USDT-products: Increased usage of USDT in consumer products (like PornHub) and margin-trading products, particularly Futures on OKex, Binance, Bitfinex, and others, means more people have to hold USDT in order to trade. This is neither bullish nor bearish for bitcoin as these are zero-sum games traders play on the market. It just represents more usage of USDT.
• Fed 0% rate policy: You do not earn any interest just from holding USDT, unless you are playing the DeFi game or lending it to a centralised middleman. So, the opportunity cost of holding USDT versus USD is that in USD you can normally get a return in moneymarkets. However with Fed policy setting interest rates at 0%, you may as well be holding a USDT token getting 0% because you’re getting 0% in the bank on your USD. Also, the rise in various products, DeFi or otherwise, means there is opportunity to get USD yield by putting USDT to work in the crypto lending markets.
• “King Dollar” Global Demand: In a macroeconomic environment where Emerging Markets currencies are weakening and there is high dollar-demand, traders outside of the US are interested in buying up USDT just so that in their overall (crypto and non-crypto) portfolio that they are getting dollar exposure. Many of these EM actors can’t actually get a dollar bank account so this is a good alternative.

The general assumption for years has been that when Tether Go Brrr and mints new USDT supply that this is a sign of someone who wants to buy Bitcoin and buy it now. Thus, USDT minting has been seen as bullish, akin to the Fed printing money to prop up asset markets.

However, as discussed in this article, the mechanism is more complicated than that, especially in this rather bearish climate we find ourselves in now.