In the crypto asset market, the stablecoin USDT issued by Tether plays an important role, providing investors with a channel for funds to enter and exit the crypto market. Investors' attention and interest in the crypto market can often be reflected in the changes in USDT demand. However, in the process of analyzing the changes in USDT demand, an important indicator stands out, that is, "USDT OTC premium". So what is the USDT OTC premium and what impact does it have on the market?
USDT OTC Premium Definition
In theory, the price of USDT should be equal to that of the US dollar. But in reality, the price of USDT is always higher or lower than that of the US dollar, which is called a premium.
USDT OTC premium is the ratio between the OTC price and the USD price. Market prices are affected by supply and demand, so when the demand for crypto assets increases excessively, this indicator tends to be higher than 100%, that is, a positive premium; on the contrary, when market demand is weak, the market price of USDT will be low, resulting in a 4% or higher discount rate on the indicator, that is, a negative premium.
In short, the more people buy USDT, the higher the USDT price will be, and a positive premium will appear; conversely, the fewer people buy USDT, the OTC price of USDT will often show a negative premium.
USDT OTC premium impact
USDT OTC premium is not just an indicator, it can also reflect the actual situation of the market and will have an impact on the market. A positive premium usually drives up the price of mainstream coins, while reducing the number of people who sell USDT and withdraw cash, which is good for the market and OTC funds are entering the market. On the contrary, a negative premium is usually not good for the market and may lead to a large outflow of funds from the market.
Therefore, the USDT OTC premium can reflect the retail purchase volume of crypto assets and is a reference to the short-term market capitalization and activity.
USDT price stabilization mechanism
To achieve the goal of keeping USDT stable, Tether has taken some measures:
First of all, USDT is pegged to the real-world U.S. dollar and can be exchanged 1:1. Therefore, when the premium is large, the market will engage in arbitrage, thereby pushing prices back to stability.
Secondly, Tether will stabilize the price by adjusting the supply of USDT. Generally speaking, when USDT is at a positive premium, a large amount of USDT will be transferred out of the Tether account, and the market will interpret it as "increase issuance". Conversely, when USDT has a negative premium for a period of time, Tether will recycle and destroy a part of USDT to maintain market balance.
In general, the USDT OTC premium not only reflects the market conditions, but also has an impact on the market. Historical data shows that in a bull market, the USDT OTC premium is usually positive; in a bear market, the USDT OTC premium is usually negative.
However, whether it is a positive premium or a negative premium, it is a normal market fluctuation. Investors should consider a variety of factors when making decisions, including fundamentals, technical indicators, economic conditions, etc.
