Binance Freezes Doge Withdrawals

The biggest crypto news and ideas of the day

Nov. 12, 2021

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Today’s must-reads

Top Shelf

DIGITAL CULTURE: Universal Music Group has signed Kingship – a collection of four anthropomorphic non-fungible tokens (NFT) that have formed a band. Though there’s no music yet, some think this represents a step forward for “digital celebrity.” A little more real: An imprisoned Russian artist is selling NFTs to support his family and fellow inmates. Finally, blockchain gaming and NFTs got a boost after major crypto players Andreessen Horowitz (a16z), Cosmos and Polygon Studios invested an additional $725 million in a Series B for the blockchain gaming platform Forte.

BINANCE’S BEHEMOTH: Indian cryptocurrency exchange WazirX said its user base has grown by over 10 times this year to 10 million. The Binance-owned exchange recorded trading volume of over $38 billion year to date, equating to average monthly growth of 44%, the exchange announced on Friday. Speaking of Binance, the global crypto behemoth, reportedly suspended withdrawals of DOGE following an upgrade that caused a “minor issue.”

DRAW DOWN: OMG, the native token of the OMG Network layer 2 scaling protocol for Ethereum that offers faster and cheaper transactions, crashed 27% on Friday. The drawdown came after Boba Network, a new layer 2 product created by blockchain developer Enya in collaboration with OMG Network, airdropped tokens to OMG holders. Meanwhile, blockchain analytics firm Santiment has found that active addresses and trading volumes on Ethereum have decoupled from its native token’s (ETH) rising price. That may prefigure a price correction.

BAKKT DOWN: Bakkt, the once closely watched, publicly traded investment firm that was early on bitcoin futures, posted a Q3 net loss of $28.8 million, versus a net loss of $18 million in the same period a year ago. Shares fell about 7% in premarket trading after the earnings release.

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Off-Chain Signals

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Putting the news in perspective

The Takeaway

Tethered to China?

Lawrence Lewitinn reporting today. For critics of Tether, the new economy of digital assets is based on the world’s oldest profession: real estate speculation.

Crypto markets took a dip Thursday just around the time it was reported that China’s Evergrande Group was on the verge of defaulting on a bond payment. While the embattled housing giant ultimately made its scheduled payment of $148 million, questions persist about the long-term prospects for it and other real estate developers in China. Bitcoin, meanwhile, remained above all-time highs by about 5.5%.

What does one have to do with the other? Well, think of a detective in a movie who takes a corkboard, some photos and a lot of white strings to put all the parts of a story together.

It goes something like this: About half of all bitcoin trades against stablecoin tether (USDT), according to data from CryptoCompare. About half of Tether’s roughly $75 billion in assets, which back USDT, is in commercial paper. While Tether (the company) said back in September it doesn’t hold Evergrande commercial paper, about a month ago Bloomberg BusinessWeek reported Tether’s holdings included “billions of dollars of short-term loans to large Chinese companies – something money-market funds avoid.”

So while Evergrande may not be on the books, the concern is that the commercial paper may be from other real estate firms.

Scaled to size
Understanding the magnitude of size and growth of USDT, bitcoin and Chinese commercial paper may help give some perspective to the latest headlines.

Just two years ago, USDT’s market cap was a mere $4 billion. Thus, it has grown 19-fold in a matter of two dozen months.

In those two years, bitcoin’s market cap has gone up eight times, from $159 billion to $1.3 trillion.

Meanwhile, based on data from the People’s Bank of China, Chinese commercial paper ended Q2 in 2021 at around $900 billion, up from just shy of $700 billion that same quarter in 2019, a gain of less than a third.

In absolute terms, the sizes look something like this:

A chart like the one above doesn’t give a sense of the rate of growth for each, but this does:

Bitcoin and USDT look somewhat related, but does one move as a function of the other? Perhaps, if one were to scale tether on a different Y-axis like so:

Perhaps the tail wags the dog. Or perhaps there are other ways to explain things.

Tether’s defenders can say that even if one were to assume Tether spent half of every dollar it is said to have taken in over the past two years on commercial paper in China, that would be under one-fifth of new issuances and 4% of the market.

That should refute anyone who could try to argue USDT may have fueled China’s boom in commercial paper. Yet, does Tether truly own a lot of Chinese commercial paper? Can it be liquidated to meet redemptions? Those questions can only be answered with a little more transparency from the stablecoin’s issuer.

Given Tether’s record to this point, that may take a while.

–Lawrence Lewitinn

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