The recent news surrounding the rise of Tethers (USDT) in the Chinese markets has given rise to a debate between those that believe that it is an indication of market domination by a single entity. Whilst others are of the opinion that the move indicates that there is a significant growth opportunity for those looking to trade the currency pairs on the open market, without needing to rely on the intervention of a broker or a financial institution. We look at this particular topic in the following article and also discuss what impact the recent move will have on the wider FX markets.
The latest announcement from Tethers (USDT) comes on the heels of a similar announcement from the Hong Kong exchange, the Hang Seng Index. The two announcements point to the potential emergence of two separate, but complimentary, markets. As far as we are concerned, we think that it is very unlikely that these markets will become a primary player in the FX markets, but the fact remains that they do represent a huge amount of trading interest.
It should be noted that the recent rise in USDT trading volume was not confined to one particular trading session. Rather, the movement has been ongoing throughout the trading day, with a notable spike in volume during the evening hours. With a daily trading volume of over USD1.3 billion, it would appear that this new market in China represents a significant growth opportunity for many traders, particularly in relation to their ability to make profitable long term trades without needing to rely on the intervention of a third party.
However, the recent surge in USDT trading volume does present a number of issues for traders. For example, if we assume that the rise in volume represents the work of a single entity – in this case the US-based firm which is responsible for all the activity – then there can be substantial implications for the broader market in terms of the potential for manipulation.
If we assume that the surge in volume on the side of Tethers (USDT) trading is the work of one entity, then this entity could be attempting to manipulate the price of the underlying currency pair. For example, it is well documented that many large players are engaging in “speculative arbitrage” operations, where they attempt to exploit movements in the underlying currency pair against the base currency to create the perception of an advantage for themselves.
So, whilst it would appear from the recent rise in trading volumes that there is a growing opportunity for traders on the open market, it is important to note that this growth is likely to be very volatile. If you want to get the most out of this market and secure yourself the largest potential profits, you will need to become a part of this dynamic marketplace and ensure that you are able to read and react quickly to any changes in the market.