Analysis of Tether and Bitfinex’s New Announcements, It’s An Improvement and A New Arbitrage Opportunity

Biancoin, 11.30-On Wednesday, Bitfinex issued an announcement, claiming that since November 27, the exchange will add USDT/USD and EURT/EUR trading pairs, the two sets of crypto-fiat pairs will replace the previous 1:1 conversion on deposits and withdraws of USDT.

In this regard, the media gave an explanation, saying that this is a sign that the 1:1 fixed exchange ratio between USDT and US dollars has been changed, which is a bad news for the market.

At the same time, the price of Bitcoin has increased nearly 8% within a short time, a change in the recent downtrend, which seems to confirm this conjecture.

But a cryptocurrency market analyst gave Biancoin a different view.

How to understand the 1:1 rate ?

Firstly, look at Bitfinex’s announcement, which said to change the exchange policy from the “guarantee of the Tether/US Dollar 1:1 peg” to “exchange rate as the market changes, no longer strictly in accordance with 1:1 rate.”

Then look at Tether’s announcement, which said Tether will restart “direct Tether-to-fiat conversions at a fixed 1:1 rate”.

Tether announcement also focuses on the transaction Value: from 100,000 dollars to 999999 dollars range, fee per deposit of fiat is 0.1% and fee per fiat withdrawal is up to $ 1,000 or 0.4% fee, which is greater; from 1 million dollars to 10 million US dollars, fee per deposit of fiat is 0.1%, and fee per fiat withdrawal is up to 1%; for 10 million dollars and more, fee per deposit of fiat is 0.1%; fee per fiat withdrawal is up to 3%.

This means that customers will be charged a maximum of 3% withdrawal fee for their redemption. Moreover, the customers are limited to one USD fiat redemption per week.

Zhao Dong’s Interpretation

Zhao Dong, a shareholder of Bitfinex, gave his own interpretation on his Wechat moment. He believes that this is Bitfinex’s acknowledgment that the stable currency is not stable, which is a “great improvement”. In his view, even a government cannot guarantee the “stability” of a fiat currency. Why bother with one exchange?

Zhao also believes that at present Bitfinex have separated business with Tether, Bitfinex is only responsible for Exchange sector, while Tether is only responsible for USDT.

New arbitrage opportunities

Currently, per Tether’s official announcement, Tether-to-fiat conversions is at a fixed 1:1 rate.

“In theory, this will bring a new arbitrage opportunity,” A trader familiar with the financial market told Biancoin, “if the market volatility is too large, investors can recover a large amount of low-priced USDT in the market, then convert it to US dollars on Tether platform.”

He further explained that as long as there is sufficiently low-priced USDT on the market, users will have the power to buy, and then go to Tether’s official website to withdraw their USDT to fiat currency. The difference may not be big, but if the amount is large enough, it is still “profitable.”

“Arbitrage is not strange in the financial space, nor do they only occur in mainstream cryptocurrencies market such as Bitcoin. Now Bitfinex says that USDT is no longer 1:1 conversion rate, which naturally creates arbitrage opportunities,” he analyzed, “ no need to make a fuss.”

He also believes that the new regulation is actually a good news, “although the USDT-to-fiat redemption on Tether platform still has a relatively high threshold, $100,000 is not the amount that average users can afford, but this is a very big improvement compared to no official redemption entrance previously.”