Crypto Ecosystem

Stablecoin wars: Did Tether experience increased pressure?

, August 11, 2023

In this week’s crypto highlights, we explore the price movements of BTC, XRP, XDC, and BNT. Additionally, this recap includes other notable industry news items that occurred over the last seven days. Without further ado, let’s dive into the latest market developments.

Noteworthy market events

USDT underwent a temporary depeg amid a series of events

Tether (USDT) depegged by less than 1%, and lost around 400 million in market cap in a week. Since the reason was not immediately clear, people began playing detective Pikachu, trying to find potential catalysts — because the USDT depeg is no joke. Some have even said that the stablecoin wars could be reignited. Here is a brief overview of these arguably connected red lines.

Let’s start with one notable event that preceded the USDT depeg. On July 31, Tether released its Q2 2023 Attestation Report, which stated that its operating profits increased by 30%, totaling over $1 billion for the quarter. In addition, 85% of the company’s reserves were deemed liquid, and the company reportedly had more than $72 billion in exposure to U.S. treasuries. 

This may all sound like news that makes the depeg which followed even stranger. However, on August 3, the USDT market cap started to decrease. According to Kaiko, Curve’s 3pool and Uniswap V3’s main USDT-USDC pool both became imbalanced, spotting increased USDT selling pressure although “there has been no clear bearish catalyst for that.” 

Tether’s CTO Paolo Ardoine suggested that the developments could be the result of “foul play” from competitors, hinting at the recent FDUSD stablecoin listing on Binance. But Kaiko data shows that FDUSD trade volumes have struggled to take off, even when zero-fee pairs on Binance were introduced.

At the same time, according to Coinbase CEO Brian Armstrong, Binance exchanged its USDC for “another stablecoin.” People began speculating that Binance CEO Changpeng Zhao, and Tron co-founder Justin Sun, were cashing out USDT through USDC due to “possible” USDT redemption issues. TUSD was labeled as one of the potential endpoints for these moves.

In total, USDT experienced a slight decrease, while USDC, DAI, TUSD, and FDUSD all saw an increase in their market cap. However, none of this significantly changed Tether’s market dominance.

Huobi faced a wave of withdrawals amid insolvency concerns

However, the above does not represent all potential catalysts of the USDT depeg. Some connected it with the recent concerns associated with the Huobi crypto exchange.

On August 3, Justin Sun stated that Huobi failed to show net profit over the past four quarters, but is expected to break even in October-December. He is typically credited with controlling said crypto exchange. Justin Sun did not give specific values, but acknowledged that Huobi spent “too much” on marketing, advertising, and salaries.

On August 5, analyst Adam Cochran published a post on X (formerly Twitter), which he subsequently deleted, claiming that some members of the Huobi and Tron leadership teams were interrogated by the Chinese police. He even provided a list of names of people who could be arrested. After conducting his own audit, he concluded that there are about $630 million in total user balances. At the same time, he estimated the platform’s reserves at only $90 million. 

And how is this connected to USDT? Adam Cochran also claimed that interrogations happened shortly after the stUSDT launch, and that Justin Sun had approximately 98% of all stUSDT tokens in his possession. He also said that Binance was actively selling USDT, after discovering this information. A Huobi representative said these are just rumors.

According to Nansen, Huobi faced over $64 million in withdrawals in the 24 hours following Cochran’s post. Nansen also noted that the highest outflows came from USDT and USDC stablecoins. On August 8, Arkham Intelligence reported that Justin Sun allegedly deposited $200 million in USDT to shore up exchange liquidity. The same day, Sun retweeted a Coindesk article claiming that a Huobi spokesperson’s confirmation that recent large deposits on the exchange did not originate from Justin Sun.

PayPal launched its own PYUSD stablecoin

Yes, we’re not done with stablecoins. 

Payments giant PayPal announced the launch of its Ethereum-based PayPal USD (PYUSD) stablecoin, issued by Paxos. According to the press release, the asset is fully backed by U.S. dollar deposits, short-term U.S. treasuries, and similar cash equivalents. It can also be redeemed 1:1 for U.S. dollars. 

​​It’s already available outside of the U.S. For U.S. customers, the service will roll out in the coming weeks. Users will be able to transfer the stablecoin between PayPal, Venmo, and other compatible external wallets.

Shortly after the announcement, several fake tokens with the PYUSD ticker appeared on Uniswap. According to PayPal, PYUSD will only be accessible through its platform. In addition, U.S. House Financial Services Committee Chairman Patrick McHenry pointed out the need to approve a stablecoin bill, following PayPal’s launch.

Crypto community members were immediately concerned about the centralized aspect of PayPal. In particular, Blockware Solutions Chief Analyst Joe Burnett said that those who support the launch of PYUSD have “lost the plot.” Some compared PYUSD with a central bank digital currency (CBDC) in terms of censorship levels. Others saw it as an opportunity for Ethereum adoption.

Several smart contract auditors have indicated other “red flags” arise from PayPal’s offering. For instance, the code was written using an old version of Solidity, potentially making it less efficient compared to other Ethereum-based tokens. In addition, PYUSD contains code, allowing the owner to freeze addresses, wipe funds, pause all transfers, and increase token supply anytime. Some expressed the concern that PayPal might use these controversial features if deemed necessary.

Revolut will suspend crypto operations in the U.S. over regulatory uncertainty

Congratulations, you reached the non-stablecoin news section! But they will still be mentioned a few more times before we’re through.

On September 2, Revolut will shut down its crypto services in the U.S. due to the “uncertain regulatory environment.” U.S. customers were asked to withdraw all crypto assets from the platform by that date. However, Revolut users in other jurisdictions may continue to use the platform’s crypto trading services. This development impacts around 1% of Revolut’s total crypto users.

Revolut had already delisted a number of cryptocurrencies for trading in the U.S. after they were labeled unregistered securities by the U.S. Securities and Exchange Commission (SEC) earlier this year.

One sentence news

  • The U.S. Federal Reserve published fresh crypto guidance for the oversight of bank crypto activity, including a fuller explanation of how supervised institutions need to get pre-approvals for engaging with stablecoins.
  • The U.K. government could rebalance the power between the Bank of England (BoE) and the Financial Conduct Authority (FCA), setting out some measures for regulating so-called “systemically important stablecoins.”
  • Coinbase officially launched its layer 2 (L2) network Base.
  • Kenya suspended Worldcoin operations amid security and privacy concerns.
  • JPMorgan said Curve contagion was contained, while the project recouped 73% of hacked funds.
  • The SEC froze the assets of the Digital Licensing mining company, alleging the company is engaged in fraudulent activities.

Bitcoin volatility reached historical lows

According to Glassnode, Bitcoin is experiencing extreme volatility compression. Recently, its price has been more stable than gold and stocks. However, prolonged periods of decreased volatility typically lead to significant market moves. 

On August 9, Bitcoin temporarily tested $30,000 amid increased optimism toward potential spot Bitcoin ETF approval in the U.S. Bloomberg analysts increased the odds of this happening this year, from 50% to 65% The first deadline for spot Bitcoin ETF (Ark Invest’s one) is set for August 13, but the date may be delayed by up to 240 days. Ark Invest founder Cathy Wood said that in fact a delay is likely.

At the same time, Bitcoin price reached the eight-month-long support line (cyan line). Recent price movement resembles a falling wedge pattern, similar to the one the asset experienced in April-June 2023, but at a lower scale. In addition, the monthly MACD made a bullish crossover. This suggests that upward movement could follow, with $31,300 as the next potential target.

However, bearish divergence with RSI occurred on a weekly timeframe, hinting at a potential correction continuation. If the price moves below $28,500, the asset may test the 200-day SMA.

XRP price continued its correction, after SEC appeal plans

On August 9, the SEC said in a court filing that it will file an “interlocutory appeal” of a judge’s ruling on Ripple’s case. According to Coindesk, the regulator stated that approval of an interlocutory appeal could prevent the SEC and U.S. government from needing two trials. 

Notably, U.S. Judge Jed Rakoff, who is overseeing the SEC vs. Terraform Labs case, recently gave a detailed interpretation of the Howey test that was at odds with the reasoning in the Ripple case. Ripple’s Chief Legal Officer Stuart Alderoty said that the company will file its response with the court next week. 

As we mentioned a few weeks ago, Ripple was likely to experience a correction, after a price surge inspired by the partial victory against the SEC. The asset broke the $0.68 support level, and started to consolidate between the 20-day EMA and 50-day SMA. The Awesome Oscillator (AO) crossed the zero line, and RSI moved to the negative territory, indicating that bears could continue dominating the market.

XDC ecosystem has more than doubled in a month

XDC was one of the best-performing assets in July, among the top 100 cryptocurrencies by market cap. It showed a more than 120% price increase, and the network’s total value locked (TVL) moved from $2.75 to $6.75 million in a month, according to DefiLlama. The major contributor to this increase is considered to be the XSwap protocol that showed a 110% surge in TVL.

However, over the last seven days, both XDC price and TVL dropped by 15%. Shortly before the drop, the asset formed a bearish divergence on a daily chart. As a result, its price moved to the 0.5 Fibonacci point, and the 20-day EMA. 

The following price movement could depend on whether or not the asset defends this level. MACD’s bearish crossover and RSI in negative territory on lower timeframes hint that the path of least resistance could be downward.

BNT price surged amid a Carbon protocol push

BNT joined the club of top weekly gainers, with its 60% price jump. The move could be connected to Bancor’s Carbon protocol that empowers users to trade using automated DEX strategies. Several new features were introduced for Carbon within the last week, potentially helping Bancor to gain increased interest in its project.

However, the asset reached the overbought level on a daily chart, and formed a bearish divergence on lower timeframes. In addition, the price broke the upper border of the Bollinger channel, and is still trading around it. All of that hints that a price correction is likely to follow. 

If bulls fail to sustain above $0.53, the asset could move to the middle of the Bollinger channel, which is located near the $0.45 level.

Tune in next week, and every week, for the latest CEX.IO crypto highlights. For more information, head over to the Exchange to check current prices, or stop by CEX.IO University to continue expanding your crypto knowledge.

Exchange Plus is currently not available in the U.S. Check the list of supported jurisdictions here.

Disclaimer: For information purposes only. Not investment or financial advice. Seek professional advice. Digital assets involve risk. Do your own research

Related

Crypto Ecosystem

Could FTX’s potential selloff move crypto markets?

FTX received court approval to sell its crypto portfolio, reportedly worth $3.4 billion. Might it barely affect digital asset performances?

Sep 15, 2023 | 11 min read
Crypto Ecosystem

Nearly 20% of ETH is now staked. Could this push up the ETH price?

There is now more staked ETH, than that held on exchanges. Discover whether or not it could help the ETH price continue its upward momentum.

Jun 29, 2023 | 12 min read
Crypto Ecosystem

Why does Bitcoin remain resilient despite increased bearish pressure?

Despite negative media coverage of crypto this week, the Bitcoin price predominantly moved sideways, as if nothing happened. Discover what could be next.

Mar 30, 2023 | 11 min read