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Bitcoin price hit 2023 high, so why are retail traders waiting on the sidelines?

Bitcoin price keeps going up, but retail traders are not piling in yet. Cointelegraph explores why.

The total market capitalization of the cryptocurrency market surged past $1.55 trillion on Dec. 5, driven by remarkable weekly gains of 14.5% for Bitcoin (BTC) and 11% for Ether (ETH). Notably, this milestone, marking the highest level in 19 months, propelled Bitcoin to become the world’s ninth-largest tradable asset, surpassing Meta’s $814 billion capitalization.

Despite the recent bullish momentum, analysts have observed that retail demand remains relatively stagnant. Some attribute this to the ripple effects of an inflationary environment and decreased interest in credit, given that interest rates continue to hover above 5.25%. While analyst Rajat Soni’s post may have dramatized the situation, the underlying, in essence, holds true.

Numerous United States economic indicators have surged to record highs, including wages, salaries and household net worth. However, analyst Ed Yardeni suggested that the “Santa Claus rally” might have already occurred earlier this year, with the S&P 500 gaining 8.9% in November.

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Tether market cap eyes record high after regaining 65% stablecoin dominance

The market capitalization of Tether is nearly a billion dollars away from reaching a new lifetime peak while rival stablecoins struggle.

Tether has emerged as a clear winner amid the ongoing banking crisis and crypto crackdown in the United States.

On April 17, the U.S. dollar-pegged stablecoin’s circulating market valuation reached nearly $81 billion, just 1.5% below its record high of $82.29 billion from a year ago. It has grown about 20% year-to-date (YTD) already and is now eyeing new all-time highs.

USDT market capitalization monthly chart. Source: TradingView

Tether rivals hit new yearly lows

Tether’s (USDT) growth came as it ate up the market share of its stablecoin rivals, USD Coin (USDC) and Binance USD (BUSD). That is due to crypto traders’ belief that Tether’s operations have no exposure to the potential banking crisis contagion.

For instance, the circulating market capitalization of USD Coin, the second-largest stablecoin, has dropped over 25% YTD to $31.82 billion, its lowest level since October 2021, primarily due to its exposure to the failed Silicon Valley Bank. 

USDC market capitalization monthly chart. Source: TradingView

BUSD, on the other hand, has witnessed a 60% drop in market capitalization in 2023 to $6.68 billion, its lowest since April 2021, as the New York Department of Financial Services ordered Paxos, a regional crypto firm, to stop its mint and issuance. 

Moreover, the U.S. Securities and Exchange Commission asserts that BUSD is a “security.” Conversely, the U.S. Commodity Futures Trading Commission alleges that the stablecoin is a “commodity.”

This capital shift likely helped Tether boost its dominance above 65% in the global stablecoin sector for the first time since May 2021, according to Glassnode data.

Stablecoin supply dominance. Source: Glassnode

On April 16, the U.S. House Financial Services Committee published a draft version of its potential stablecoin bill to create definitions for issuers. It says that non-U.S. firms like Tether must register if they cater to Americans, albeit without mentioning the specific agency that would regulate stablecoins.

Exchange stablecoin supply lowest since June 2021

Despite Tether’s market capitalization growth, its supply across crypto exchanges has been declining in 2023.

Related: BTC price heading under $30K? 5 things to know in Bitcoin this week

As of April 16, cryptocurrency exchanges had 12.94 billion USDT in their reserves compared with 17.89 billion USDT at the year’s beginning. On the whole, the stablecoin supply across exchanges has dropped 42% YTD to $21.53 billion.

Stablecoin supply across exchanges. Source: Glassnode

This dynamic coincides with the 21% YTD increase in the crypto market’s valuation from $1 trillion in January to $1.21 trillion, suggesting that Q1 has seen a trend shift from “safe” stablecoins to risk-on cryptocurrencies.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Circle CEO ‘able to access’ $3.3B of USDC’s reserves at Silicon Valley Bank

Circle’s earlier disclosure that $3.3 billion worth of USDC reserves were held with Silicon Valley Bank resulted in it losing market share to its competitor USDT.

Circle CEO and co-founder, Jeremy Allaire, confirmed that, as of March 13, the stablecoin issuer has been “able to access” its $3.3 billion of funds held with the collapsed bank, Silicon Valley Bank (SVB).

Speaking with Bloomberg Markets on March 14, Allaire said that he believed that “if not everything, very close to everything was able to clear” from the failed lender.

USD Coin (USDC) — the stablecoin issued by Circle — briefly de-pegged following news that $3.3 billion of its cash reserves were stuck on SVB.

The stablecoin’s dollar peg has since recovered, but mass redemptions of USDC have resulted in the market cap of the stablecoin dropping by nearly 10% since March 11 according to TradingView.

The market cap of USDC from March 8 to March 14. Source: TradingView

Meanwhile, throughout the same timeframe, USDC peer Tether (USDT) has recorded a slight increase in its market cap since March 11, climbing by over 1% to $73.03 billion.

Related: USDC depegged because of Silicon Valley Bank, but it’s not going to default

The temporarily locked funds had a significant effect on USDC given the $3.3 billion represented less than 8% of the token’s reserves according to its January reserve report released on March 2.

The report asserted USDC was over 100% collateralized with over 80% of the reserve consisting of short-dated United States Treasury Bills — highly liquid assets which are direct obligations of the U.S. government and considered one of the safest investments globally.

Circle ‘able to access’ $3.3B of USDC reserves at Silicon Valley Bank, CEO says

Circle’s earlier disclosure that $3.3 billion worth of USDC reserves were held with Silicon Valley Bank resulted in it losing market share to its competitor USDT.

Circle CEO and co-founder Jeremy Allaire says that since March 13, the stablecoin issuer has been “able to access” its $3.3 billion of funds held with the collapsed bank, Silicon Valley Bank.

Speaking with Bloomberg Markets on March 14, Allaire said that he believed that “if not everything, very close to everything was able to clear” from the failed lender.

USD Coin (USDC) — the stablecoin issued by Circle — briefly de-pegged following news that $3.3 billion of its cash reserves were stuck on SVB.

The stablecoin’s dollar peg has since recovered, but mass redemptions of USDC have resulted in the market cap of the stablecoin dropping by nearly 10% since March 11, according to TradingView.

The market cap of USDC from March 8 to March 14. Source: TradingView

Meanwhile, throughout the same timeframe, USDC peer Tether (USDT) has recorded a slight increase in its market cap since March 11, climbing by over 1% to $73.03 billion.

Related: USDC depegged because of Silicon Valley Bank, but it’s not going to default

The temporarily locked funds had a significant effect on USDC, even though the $3.3 billion represented less than 8% of the token’s reserves, according to its January reserve report released on March 2.

The report asserted USDC was over 100% collateralized with over 80% of the reserve consisting of short-dated United States Treasury Bills — highly liquid assets thatare direct obligations of the U.S. government and considered one of the safest investments globally.

Tether strikes at WSJ over ‘stale allegations’ of faked documents for bank accounts

Tether has hit back at a Wall Street Journal report detailing alleged shady dealings by it and Bitfinex to open bank accounts.

The company behind stablecoin Tether (USDT) has rebuffed a report by The Wall Street Journal claiming it had ties to entities that faked documents and used shell companies to maintain access to the banking system.

On March 3, the WSJ reported on leaked documents and emails purportedly revealing that entities tied to Tether and its sister cryptocurrency exchange Bitfinex faked sales invoices and transactions and hid behind third parties in order to open bank accounts they otherwise may not have been able to open.

In a March 3 statement, Tether called the findings of the report “stale allegations from long ago” and “wholly inaccurate and misleading,” adding:

“Bitfinex and Tether have world-class compliance programs and adhere to applicable Anti-Money Laundering, Know Your Customer, and Counter-Terrorist Financing legal requirements.”

The firm went on to say that it was a “proud” partner with law enforcement and “routinely and voluntarily” assists authorities in the United States and abroad.

Tether and Bitfinex chief technology officer Paolo Ardoino tweeted on March 3 that the report had “misinformation and inaccuracies” and insinuated that the WSJ reporters were clowns.

Tether and Bitfinex told Cointelegraph that they have no further comments aside from the public letter.

WSJ report claims Tether and Bitfinex obscured itself

The WSJ article outlines — through its reported review of leaked emails and documents — Tether and Bitfinex’s apparent dealings to stay connected to banks and other financial institutions that, if cut off from, would be  “an existential threat” to their business, according to a lawsuit filed by the pair against Wells Fargo bank.

One of the leaked emails suggests the firm’s China-based intermediaries were attempting to “circumvent the banking system by providing fake sales invoices and contracts for each deposit and withdrawal.”

Screenshot of headline from Wall Street Journal. Source: Wall Street Journal

There were also accusations in the report that Tether and Bitfinex used various means to skirt controls that would have restricted them from financial institutions, and had links to a firm that allegedly laundered money for a United States-designated terrorist organization, among others. 

Meanwhile, a person familiar with the matter told the WSJ that Tether has been under investigation by the Department of Justice in a probe headed by the U.S. Attorney’s Office for the Southern District of New York. The nature of the investigation could not be determined.

Related: Silvergate closes exchange network, releases $9.9M to BlockFi

Tether has faced multiple allegations of wrongdoing over the past few months and recently had to downplay a separate WSJ report in early February that claimed four men controlled approximately 86% of the firm since 2018.

It similarly had to combat what it called “FUD” (fear, uncertainty, and doubt) from a WSJ report last December concerning its secured loans and subsequently pledged to stop lending funds from its reserves.

Binance mints 50M TrueUSD days after Paxos ordered stop issuing BUSD

Despite the minting of $50 million in TUSD, Zhao previously said the regulatory crackdown on stablecoins in the U.S. will cause the USD-back stablecoin market to “shrink.”

Only days after reports of United States regulatory scrutiny of Paxos and Binance USD (BUSD),  cryptocurrency exchange Binance has minted nearly $50 million worth of TrueUSD (TUSD).

The transaction took place on Feb. 16, according to data from Etherscan, and also comes two days after Binance CEO Chanpeng “CZ” Zhao said in a Feb. 14 Twitter Spaces that Binance would look to “diversify” its stablecoin holdings away from BUSD.

Despite minting nearly $50 million in TUSD from the TrustToken platform’s smart contract, CZ had earlier said that the recent regulatory action by the United States Securities Exchange Commission and the New York Department of Financial Services over the long term may lead to a fall in the dominance of U.S. dollar-backed stablecoins.

“I think with the current stances taken by the regulators on the U.S. dollar-based stablecoin, the industry will probably move away to a non-U.S. dollar-based stablecoin, back to algorithmic stablecoins.”

“There’s multiple agencies putting applied pressure there. It is just going to shrink the U.S. dollar-based stablecoin market,” he added.

CZ said that “this has prompted us to look for more options in different places” and that they’re now exploring other options.

While the CEO stated that Binance would provide more support for USD Coin (USDC) and Tether (USDT) over the short term — in the expectation that BUSD “winds down over time” — he added that they’re now looking to explore more into euro- and Japanese yen-based stablecoins.

As for BUSD, CZ said that “the existing circulating supply of BUSD is there and safe, and as more people want to redeem, they will be burned.”

Interestingly, the Binance CEO added that he was never too bullish on the success of the Binance-branded BUSD stablecoin anyway:

“To be honest BUSD was never a big business for us, when we started I actually thought the BUSD project may fail, so we actually don’t have very good economics on that collaboration.”

Interestingly, in September, TUSD was one of the stablecoins that Binance auto-converted to BUSD to enhance liquidity and capital efficiency for its users. Other stablecoins that got auto-converted were USDC and USDP Stablecoin (USDP). This drove up BUSD’s share in the stablecoin market from 10% to 15% in a matter of weeks.

Related: TrueUSD and Balancer Offer Liquidity Providers TUSD and BAL Rewards from Stablecoin Pool Incentive Program

TrustToken launched TUSD on March 5, 2018. It exists on the Ethereum, Avalanche, Polygon and Tron networks.

New TUSD is minted whenever a buyer wires USD to a third-party escrow account that holds USD deposits on Prime Trust’s behalf. Once received, TUSD will be transferred in a 1:1 ratio to the USD sent to the trader’s nominated ERC-20 or BEP-2 wallet address.

USDC transfer volume hit 5X USDT’s in fallout from FTX collapse

Although it has a much smaller market cap, on-chain data shows that USDC has a much greater transfer volume than its main competitor USDT.

Stablecoin USD Coin (USDC) has grown in popularity since the collapse of FTX. It now frequently reaches daily transfer volumes four to five times that recorded by major competitor Tether (USDT) according to data from blockchain analytics firm Glassnode.

That’s despite the market cap of USDT being $23 billion greater than USDC. As of Jan. 10, the difference was in USDC’s favor by a margin of four and a half times.

Both stablecoins recorded surges in transfer volumes following an infamous tweet from Binance CEO Changpeng Zhao on Nov. 6 announcing Binance would liquidate its entire FTX Token (FTT) holdings. FTX went into bankruptcy soon after.

Since then, USDC has been the preferred choice for crypto users, averaging over $12.5 billion more in transfer volume per day than USDT, according to Glassnode data.

Total transfer volumes for USDC (In blue) and USDT (In green) from Oct. 8, 2022, to Jan. 10, 2023. Source: Glassnode.

While each stablecoin is designed to trade as close to one U.S. dollar as possible and is backed by reserves held by its issuers, USDC is regarded by some in the crypto community as a potentially safer option.

Supporters point to USDC’s assets, which are backed by cash or short-term United States treasuries and its monthly audits by global accounting firm Grant Thornton.

Tether has faced criticism over several years for not providing a proper audit and being less transparent about its reserves.

Cast your vote now!

The company behind USDT was fined $41 million in October 2021 by the Commodity Futures Trading Commission, which accused it of only holding sufficient reserves 27.6% of the time between 2016 and 2018 despite claiming its tokens were fully backed by fiat currencies.

Tether has been reducing the commercial paper backing its issued tokens in favor of safer alternatives, with the latest asset breakdown on Nov. 10 shows that nearly $46 billion of its reserves consist of cash, bank deposits and U.S. treasuries.

Related: Crypto.com delists USDT for Canadian users following OSC ban

USDT briefly lost its peg to the U.S. dollar following the FTX collapse amid fears of exposure to Alameda Research and FTX, which Tether denied.

On-chain evidence suggests the two firms were attempting to short the stablecoin.

USDT had been recording transfer volumes much higher than USDCs up until May 2021, after Tether had increased the supply of the token from $8.79 billion to $61.82 billion in the previous year, representing an increase of 603%.

Market cap of USDT from May 2018 to January 2022. Source: TradingView

Despite the subsequent change in consumer preferences, Tether had referred to the growth in market capitalization as an indication of “the market’s continued trust and confidence in Tether.” It noted every token could be redeemed for U.S. dollars on a 1:1 basis.

Crypto.com delists USDT for Canadian users following OSC ban

Registered cryptocurrency exchanges in Ontario, Canada, cannot list USDT due to regulatory prohibition.

According to user reports circulating on social media on Jan. 10, cryptocurrency exchange Crypto.com plans to delist Tether (USDT) for Canadian users, effective Jan 31. The exchange has told itcustomers that if they do not withdraw or convert their USDT assets by the deadline, then their Tether will be automatically converted into USD Coin (USDC). It wrote:

“You may incur a retrieval fee if deposits of USDT are made from external wallets after this suspension period, and fund retrieval may not be possible in some cases.”

In August, Crypto.com announced that the Ontario Securities Commission had accepted the firm’s pre-registration undertaking for operations in Canada. As part of regulatory requirements, cryptocurrency exchanges operating in the Canadian province of Ontario are prohibited from listing digital assets banned by the OSC, which includes USDT. Similarly, Coinsquare, a cryptocurrency exchange regulated by the Investment Industry Regulatory Organization of Canada (IIROC), currently does not list USDT as one of its available trading assets. 

In issuing its decision, the OSC never explained the rationale behind its Tether ban. However, a document unsealed on Feb 17, 2021, stated that “the only U.S. dollars held by Tether ostensibly backing the approximately 442 million tethers in circulation was the approximately $61 million on deposit at the Bank of Montreal.” Meanwhile, experts have from time to time questioned the authenticity of Tether’s reserves and its audits. 

Cast your vote now!

Currently, all prospective cryptocurrency exchanges must register with the IIROC if they want to operate in Canada. Exchanges such as Binance, Bybit and Huobi have faced issues with the OSC in the past regarding their regulatory status. 

Tether to reduce secured loans to zero in 2023 amid battle against FUD

The move comes in response to a wave of mainstream media attacks and FUD, primarily from the Wall Street Journal.

The world’s largest stablecoin issuer, Tether, has pledged to eventually stop the practice of lending out funds from its reserves, saying it is “mission critical to restore faith” in the crypto market. 

In a Dec. 13 post, the stablecoin issuer addressed recent mainstream media FUD (fear, uncertainty, and doubt) concerning its secured loans, among other FUD that h hit the “rumor mill.”

Tether reiterated that its secured loans are over-collateralized and covered by “extremely liquid assets,” while also adding that the firm would be eliminating these loans throughout 2023, stating:

Tether is announcing starting from now, throughout 2023, it will reduce secured loans in Tether’s reserves to zero.

Tether’s secured loans operate similarly to private banks lending to customers using secured collateral, the company explained. However, unlike banks that operate on fractional reserves, Tether claimed that its loans are over 100% backed.

The move is likely in response to a Wall Street Journal report earlier this month alleging these loans were risky, claiming that the “company may not have enough liquid assets to pay redemptions in a crisis.”

It is not the first time that the WSJ has targeted Tether. In August the outlet said that Tether could be deemed “technically insolvent” if its assets fell just 0.3%. The stablecoin issuer refuted the claims at the time, stating that it had increased the legitimacy and transparency of its attestations by hiring a top-5 accounting firm.

According to those attestations, 82% of Tether reserves are held in “extremely liquid” assets.

In October, Tether responded to more media FUD by further eliminating commercial paper from its reserves and replacing the investments with U.S. Treasury bills.

Related: Crypto Biz: You can’t stop the Tether FUD

In its most recent statement, the company stated that it will wind down its lending business without losses and continue its mission to prioritize transparency and accountability.

“We will continue to show Tether’s resilience through the most uncertain times, regardless of the story fabrications and disinformation concocted by Tether Truthers and clickbait headlines from mainstream media that have been consistently wrong about Tether, for close to a decade.”

Tether is currently the leading stablecoin issuer, with 65.8 billion USDT circulating. It has a market share of 46.6%, according to CoinGecko.

CFTC declares Ether as a commodity again in court filing

The community is hopeful that the assertion by the Commodity Futures Trading Commission will put to bed claims that staked coins are securities according to the Howey Test.

The Commodity Futures Trading Commission (CFTC) has again labeled Ether (ETH) as a commodity, this time in a Dec. 13 court filing — in contrast to statements from chief Rostin Behnam on Nov. 30 suggesting that Bitcoin was the sole cryptocurrency that should be viewed as a commodity.

In its lawsuit against Sam Bankman-Fried, FTX, and sister company Alameda Research, the regulator on multiple occasions referred to Ether, Bitcoin (BTC) and Tether (USDT) “among others” as “commodities” under United States law.

“Certain digital assets are “commodities,” including bitcoin (BTC), ether (ETH), tether (USDT) and others, as defined under Section 1a(9) of the Act, 7 U.S.C. § 1a(9).”

However, there appears to be some disagreement within the CFTC itself regarding whether Ether should be viewed as a commodity or not, at least in recent weeks. 

During a crypto event at Princeton University on Nov. 30, CFTC chief Rostin Benham reportedly suggested that Bitcoin is the only crypto asset that should be viewed as a commodity — walking back previous comments asserting that Ether may also be a commodity.

The chairman of the Securities and Exchange Commission, Gary Gensler, has also had an undetermined stance on Ether in recent months.

In an interview with Jim Cramer during his Mad Money show on Jun. 27, Gensler confirmed that Bitcoin was a commodity, adding: “That’s the only one I’m going to say.”

Gensler has previously suggested Ether was a security after its initial coin offering but had become more decentralized and turned into a commodity since then.

His stance appeared to have shifted again following Ether’s transition to proof-of-stake, with Gensler arguing in September that staked tokens may constitute securities under the Howey test.

The designation of crypto assets in the U.S. is particularly important, as the CFTC regulates commodities futures while securities like bonds and stocks are regulated by the Securities and Exchange Commission (SEC).

Related: Judge orders CFTC to serve Ooki DAO founders with lawsuit

Crypto-skeptic Senator Elizabeth Warren is reportedly working on a bill that would give the SEC most of the regulatory authority over the crypto industry. Intercontinental Exchange Inc CEO Jeffrey Sprecher is also confident that crypto assets will be handled like securities — suggesting at a financial services conference on Dec. 6 that this would result in greater consumer protections.

Belgium has taken a different stance, however, with its Financial Services and Markets Authority asserting Nov. 22 that Bitcoin, Ether and other crypto assets issued solely by computer code do not constitute securities.