My preferred method of looking at the current or historical Tether price is by looking at the Coinbase BTC price / Bitfinex BTC price. The easiest method I’ve found is by looking at tradingview.com with the ticker COINBASE:BTCUSD/BITFINEX:BTCUSD
Most people look at coinmarketcap.com or coingecko.com for Tether prices, but I don’t think they provide very accurate prices. They both have very complicated methodology for determining coin prices. All prices are 24-hour volume weighted average prices, so the prices listed are actually volume weighted moving averages. Volume weighted moving averages do not provide the most accurate, up-to-date prices. Also, these price aggregator websites do many currency pair conversions to determine prices. This practice is based on some flawed assumptions including the assumption that all US dollar deposits with various exchanges are the same. However, not all US dollar deposits with various exchanges are equivalent to each other. A dollar deposited with Coinbase is not always equivalent to a dollar deposited with Bitfinex. When calculating the price of Bitcoin, these price aggregator websites take an average of the BTC/USD price at various exchanges, but if you try to calculate an average BTC/USD price with
BTC/BitfinexUSD * BTC/CoinbaseUSD / 2 = Wrong average BTC/USD price
because the denominators (BitfinexUSD and CoinbaseUSD) are frequently worth different USD amounts. 1 CoinbaseUSD is almost always worth 1 USD, but 1 BitfinexUSD is frequently worth significantly less than 1 USD. A more accurate average BTC/USD price could be calculated by only using exchange prices that have extremely high price correlation with each other over time, such as Coinbase, Bitstamp, Gemini and Kraken.
You can chart exchange USD price differences over time by dividing the price of BTC/USD at one exchange vs the BTC/USD price at another exchange. The Bitcoin is always the same (assuming BTC withdrawals and deposits are being processed), so the only difference in value must be due to the difference in USD values. Here is Bitstamp BTC price / various exchange’s BTC price over time. I use Bitstamp for older data and Coinbase for more recent data since Bistamp has been around longer, but Coinbase does more trading volume.
There are essentially two types of exchanges.
- Highly trusted USD exchanges that show nearly 100% correlation with each other since March 2018. These include Coinbase, Bistamp, Gemini and Kraken.
2. Less trusted exchanges that have had large BTC price divergences from the most trusted exchanges since March 2018. These are the USDT and Tether dominated exchanges. These include Bitfinex, Cex.io and Exmo.
Bit-x is worthy of its own chart. I don’t really know what to make of it since its price action isn’t like any of the others.
Unfortunately, bitcoinity.org doesn’t list any USDT only exchanges so I had to look at another data source: cryptodatadownload.com. Using this data, I found that Bitfinex’s BTC/USD has more in common with the less trusted exchanges that list BTC/USDT than the more trusted BTC/USD exchanges. Binance and Poloniex have no BTC/USD trading pairs, only BTC/USDT.
Below is the data from Cryptodatadownload using source information from the highly trusted BTC/USD exchanges Bitstamp and Kraken. Cryptodatadownload does not have Coinbase data and I found their Gemini data inaccurate.
Why is BitfinexUSD a good proxy for USDT? Because Bitfinex’s customers’ cash is co-mingled with Tether’s customers’ cash. Bitfinex and tether share managers and owners. In March of 2019, Bitfinex “borrowed” $625 million from tether reserves in exchange for 60,000,000 iFinex Inc. shares to cover for an $850 million loss. This means that Bitfinex USD liabilities are backed by tether reserves and tether reserves are backed by Bitfinex shares. The two are inextricably linked. But you don’t have to take my word for it, the price action above speaks for itself. Bitfinex BTC/USD prices diverge from more trusted exchanges’ BTC/USD prices when BTC/USDT prices diverge.
Why should you care about accurate USDT prices? Because you need an accurate USDT price to calculate an accurate USDT market cap. Coingecko and coinmarketcap provide inaccurate USDT prices.
Why should you care about Tether’s market cap? Because Tether’s market cap is highly correlated to and predictive of Bitcoin’s market cap which I will explain further in my next post Will bitcoin go up or down?
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