The most traded crypto asset isn't Bitcoin

OPINION

The big cryptocurrency global brands include Bitcoin, Litecoin, XRP, …., but Bitcoin leads the pack in Africa. And because majority crypto newbies know Bitcoin is the mother of all the other crypto assets, they also think it's a must Bitcoin is number one as far as daily trading volumes are concerned.

Surprisingly also, Bitcoin was not the first crypto currency, it was only the first crypto currency to survive the fighters of the blockchain movement. Additionally, it's not even the highest valued crypto assets in the blockchain-cryptocurrency space. But this is a topic for another day. Back to the daily trading volume battle.

Believe it or not, Bitcoin is no longer the most used cryptocurrency, with data from CoinMarketCap.com revealing that the token with the highest daily and monthly trading volume is Tether. While its market capitalization is more than 30 times smaller than Bitcoin, Tether's volume has consistently exceeded it since early August at about $21 billion per day.

If you thought it's Bitcoin, which accounts for about 70% of all the digital-asset world's market value, you're probably wrong. Bloomberg says Bitcoin accounts for about 70% of all the digital-asset world's market value, but according to data from CoinMarketCap.com, Tether (Tether's market cap is over 30 times smaller than Bitcoin)  in terms of the highest daily and monthly trading volume.

However, Tether's volume surpassed that of Bitcoin's for the first time in April and has consistently exceeded it since early August at about $21 billion per day, or 18% higher.

What is Tether?

Tether has been around since 2014 and is the world's most used stablecoin, at least for now and is in a category of tokens that seek to avoid price fluctuations, often through pegs or reserves.  

Tether was used in 40% and 80% of all transactions on two of the world's top exchanges, Binance and Huobi, respectively, Coin Metrics said earlier this year.

While concrete figures on trading volumes are hard to come by in this often misty corner of finance, data from CoinMarketCap.com show that the token with the highest daily and monthly trading volume is Tether.

So, with Tether's monthly trading volume about 18% higher than that of Bitcoin, it's arguably the most important coin in the crypto ecosystem. Tether's also one of the main reasons why regulators regard cryptocurrencies with a wary eye, and have put the breaks on crypto exchange-traded funds amid concern of market manipulation.

"If there is no Tether, we lose a massive amount of daily volume -- around $1 billion or more depending on the data source," said Lex Sokolin, global financial technology co-head at ConsenSys, which offers blockchain technology. "Some of the concerning potential patters of trading in the market may start to fall away."

Apparently, Usdt, Bitcoin and Ethereum are the most traded crypto assets on the crypto assets trading exchanges with the trading volume of over 20, 17 and 7 billion dollars consecutively.

 "For Asian traders that account for about 70% of all crypto trading volume, they like the idea that it's this offshore, opaque thing out of reach of the U.S. government," said Jeremy Allaire, chief executive officer of Circle, which supports a rival stablecoin called USD Coin. "It's a feature, not a problem."

Tether, which is also being sued by New York for allegedly mishandling funds including reserves, is used by many people unknowingly. Thaddeus Dryja, a research scientist at the Massachusetts Institute of Technology says because traditional financial institutions worry that they don't sniff out criminals and money launderers well enough, most crypto exchanges still don't have bank accounts and can't hold dollars on behalf of customers. So they use Tether as a substitute, he said.

"I don't think people actually trust Tether -- I think people use Tether without realizing that they are using it, and instead think they have actual dollars in a bank account somewhere," Dryja said. Some exchanges mislabel their pages, to convey the impression that customers are holding dollars instead of Tethers, he said.

How Tether is different from Bitcoin

The way Tether is managed and governed makes it a black box. While Bitcoin belongs to no one, Tether is issued by a Hong Kong-based private company whose proprietors also own the Bitfinex crypto exchange.

The exact mechanism by which Tether's supply is increased and decreased is unclear. Exactly how much of the supply is covered by fiat reserves is in question, too, as Tether is not independently audited. In April, Tether disclosed that 74% of the Tethers are covered by cash and short-term securities, while it previously said it had a 100% reserve.

John Griffin, a finance professor at the University of Texas at Austin, said that half of Bitcoin's run-up in 2017 was the result of market manipulation using Tether. Last year Bloomberg reported that the U.S. Justice Department is investigating Tether's role in this market manipulation.

 "Being controlled by centralized parties defeats the entire original purpose of blockchain and decentralized cryptocurrencies," Griffin said. "By avoiding government powers, stablecoins place trust instead in the hands of big tech companies, who have mixed accountability. So while the idea is great in theory, in practice it is risky, open to abuse, and plagued by similar problems to traditional fiat currencies."

On the other hand, because Tether is key to their growth, many crypto exchanges would likely be willing to bail it out if needed, said Dan Raykhman, who is developing a platform for issuing digital assets and used to be head of trading technologies for Galaxy Digital.

"There is implicit support from all these exchanges to help Tether stay afloat," he said. While dozens of stablecoins have come out in the past year, many of them independently audited and regulated, Tether remains the favorite, by far.