Crypto Flash Crash as Tether Prints $3 Billion Worth of USDT

September 09, 2021, 10:15 AM AEST - 2 weeks ago

The crypto market experienced one of its most volatile days this week since the China miner debacle, with whales taking part in a major sell-off that caused a downward spiral in the market and Tether needing to print over $3 billion in USDT.

A Sell-Off Domino Effect

Ever heard of “buy the rumour, sell the news”? As Bitcoin (BTC) inched towards its all-time high, news of El Salvador’s world-first to make bitcoin legal tender was on many crypto enthusiasts’ minds.

When the day finally came on September 7, the price started falling from above US$52,500 to below US$44,000 the following day. It dipped, but the dip was exacerbated by over-leveraged positions, since the market was in a very bullish state. Trader and analyst Scott Melker blamed large-volume traders for bitcoin’s plunge:

When the price started to dip, it was enough to trigger liquidations of those who were long on Bitcoin. In essence, there was a domino effect where the drop prompted more people to sell, in turn triggering more liquidations, which led to more people selling and so on. 

BTC/USD 4-hour candle chart. Source: TradingView

According to data from futures trading platform Bybt, US$1.5 billion in bitcoin had been liquidated in the 24 hours of the dip, while US$900 million in Ethereum suffered the same fate. In a previous major dip, leveraged traders lost nearly US$10 billion.

Overall, crypto derivatives saw a 32 percent haircut in [open interest] following this correction.

Vetle Lunde, analyst, Arcane Research

Before the dump, open interest in bitcoin futures was trending upward to its highest level since May. When looking at the altcoins, traders also reckoned the price would continue to rise.

A very hefty and bullish appetite for altcoins in the last month might have contributed to exaggerating the chaos in the market.

Vetle Lunde, analyst, Arcane Research

According to CoinGecko, both Bitcoin (BTC) and Ethereum (ETH) were hit with 11 percent and 15 percent losses respectively, with a 13 percent drop in the overall crypto market cap in 24 hours. The plunge wiped billions off the overall market, which is worth about US$2.35 trillion.

“Horrible chart damage being done in BTC and the rest of the crypto market,” tweeted crypto analyst and author Glen Goodman.

Tether Printing $3 Billion for Dip Cashouts

The combined value of the crypto market has dropped from above US$2.4 trillion to $2.1 trillion, with bitcoin itself now falling below a US$1 trillion market cap, meaning that a lot of cryptocurrencies left the market and were converted to stablecoins or fiat.

According to Whale Alert, the Tether treasury minted US$1 billion multiple times. This is usually caused by increased demand for the stablecoin, which can happen directly with Tether or indirectly through people acquiring more Tether. This leads to those directly at the Tether window getting freshly minted supply to satisfy demand.

The current number of Tether token-holders can be around 882k, not taking into account that one person might have many wallets and that it’s used as a trading pair for many cryptocurrencies.

Tether had previously been scrutinised for having a bit of a shady reserve, but it has recently been clarified. At the moment, Tether is the fifth-largest cryptocurrency by market cap due to its wide usage.

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