The price of bitcoin plummeted as the largest number of bitcoin sales poured out in a year last week. However, it soon rebounded and the existing price recovered. The reason Bitcoin was able to quickly recover its price is because there was demand from individual Chinese investors, which had been overlooked in the cryptocurrency industry.
The reason why Chinese individual investors suddenly bought a large amount of bitcoin is because the price of bitcoin has plummeted, but this phenomenon can also be seen from the perspective of’tether premium’, which has been generally overlooked. The tether premium is the difference between the value of Tether (USDT), which is priced in yuan in the over-the-counter market by cryptocurrency investors, and the value of tether in renminbi, in the global market.
In the foreign exchange market, the value of the renminbi is rising against the dollar, so under normal circumstances, the value of the stablecoin tether, which is linked to the dollar, should fall against the renminbi. However, as demand from Chinese investors for tether rose two weeks ago, a premium was added to the price of tether in yuan. Individual investors in China generally use tether to access the cryptocurrency market. Direct trading of fiat currency and cryptocurrency is still prohibited in China.
“The bull market, which started in 2020, is led by US institutional investors, but the influx of Chinese investors is also accelerating,” said Plex Yang, founder and CEO of Hong Kong-based cryptocurrency lending company Babel Finance. He said that Chinese investors, especially with very low access to bitcoin, are actively seeking ways to buy bitcoin. “Because buying bitcoin with Tether is the most direct method (in the over-the-counter market), Demand is increasing,” he said.
According to the cryptocurrency exchange Huobi, since February 19th, the Huobi over-the-counter market has been trading at a premium on the tether price. Tether premium, which was usually at a level of 0% or negligible, rose to 2% on February 23rd.
Ciara Sun, vice president of Huobi Global, said in an interview with CoinDesk US, “As investors flock to the bull market, the demand for tether is also increasing significantly.” He also predicted that over-the-counter participants “will not miss an opportunity to sell tether at a much higher price than the exchange rate.”
Another cryptocurrency exchange OKEx’s OTC market also added a premium to the tether price in yuan.
Ryu Ryu, a market analyst at OKEx Insights, explained, “It seems that investors are buying tether to buy at a low price when the cryptocurrency market overall declines.”
However, Ryu pointed out that an increase in tether premium should not necessarily be seen as an increase in the demand for new investments in cryptocurrency. This is because when market volatility is high, experienced investors often purchase additional tethers to meet the margin requirements for leveraged investments.
Meanwhile, one of the reasons why Chinese private investors, who led the cryptocurrency bull market in 2017, are refocusing on the cryptocurrency market, including bitcoin, is one of the reasons China’s state-run media recently launched cryptocurrency. It argued that it could be because they reported about it. He stressed the fact that the Chinese were buying cryptocurrencies at low prices last week.
China’s state-run financial media, CCTV2, revealed that the bitcoin yield has exceeded 1300% since March 2020 through a rare report on the status of the bitcoin market on February 21st. March 2020 is a period when the price of bitcoin remained at its low, and when explaining the rise in the price of bitcoin, which has recently risen to $58,000, it is noteworthy that the comparison point was chosen to maximize the rise. And it’s not wrong.
Reports also included that Bill Gates recently changed his position on Bitcoin from “negative” to “neutral,” and that Cash Wood, CEO of Ark Investment, is supporting Bitcoin. CCTV2 reported in a report that “as the price of bitcoin rises, the number of companies considering investing in bitcoin is increasing.”
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