USDT/INR Arbitrage Opportunities and should you participate in it?
First lets understand what is USDT or more prcisely - What Is Tether (USDT)?
Tether is a blockchain-based cryptocurrency whose cryptocoins in circulation are backed by an equivalent amount of traditional fiat currencies, like the dollar, the euro, or the Japanese yen, which are supposed to be held in a designated bank account. Tether tokens, the native tokens of the Tether network, trade under the USDT symbol.
- Tether (USDT) is a stablecoin, a type of cryptocurrency which aims to keep cryptocurrency valuations stable.
- Tether is used by crypto investors who want to avoid the extreme volatility of other cryptocurrencies while keeping value within the crypto market.
- Tether tokens trade under the USDT symbol.
Understanding Tether (USDT)
Tether belongs to a breed of cryptocurrencies called stablecoins which aim to keep cryptocurrency valuations stable, as opposed to the wide swings observed in the prices of other popular cryptocurrencies like Bitcoin and Ethereum. That would allow it to be used as a medium of exchange and a mode of storage of value, instead of being used as a medium of speculative investments.
Tether specifically belongs to the category of fiat-collateralized stablecoins. Tether was specifically designed to build the necessary bridge between fiat currencies and cryptocurrencies and offer stability, transparency, and minimal transaction charges to users. It is pegged against the U.S. dollar and maintains a 1-to-1 ratio with the U.S. dollar in terms of value. However, there is NO guarantee provided by Tether Ltd. for any right of redemption or exchange of Tethers for real money – that is, Tethers cannot be exchanged for U.S. dollars.
According to a study by CryptoCompare, a global cryptocurrency market data provider, bitcoin to Tether trading still represents the majority of BTC traded into fiat or stablecoin. In February 2021, 57% of all bitcoin trading was done in USDT. Tether remains a major source of liquidity for the cryptocurrency market.
Tether tokens can be transacted on popular cryptocurrency exchanges that include Binanace, Coinbase, WazirX, etc
- How Do I Buy USDT?
USDT tokens can be transacted on popular cryptocurrency exchanges that include Binanace, Coinbase, Wazirx, etc
- What Is the Point of the Tether Token? - Tether (USDT) offers a way for investors to avoid the extreme volatility of other cryptocurrencies. By moving value to USDT, a trader might reduce their risk of exposure to a sudden drop in the price of cryptocurrencies. It is also much quicker and cheaper to transfer BTC into Tether rather than the U.S. dollar.
- Is Tether a Stablecoin? - Yes, Tether is the first and most well-known stablecoin in the crypto world. Other stablecoins include True USD (TUSD), Pazos Standard (PAX), and USD Coin (USD).
- How Does Tether Stay at $1? While Tether has dropped below $1 before, the stablecoin is able to retain its value because it is pegged to a matching fiat currency and 100% backed by Tether's reserves.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by us to invest in cryptocurrencies or other ICOs.
USDT/INR Arbitrage Opportunities
USDT being sold at high premiums on crypto exchanges in India
But the key question is why USDT is overpriced in India and an arbitrage technique by which traders are exploiting this opportunity.
USDT being a stablecoin shouldn’t register this much volatility so frequently. A stablecoin is used as an alternative investment in the crypto markets as a hedge against the highly volatile nature of cryptocurrencies.
It is being told INCORRECTLY / FALSELY that USDT/INR pair is overpriced in India due to low depth order books (implying low liquidity on spot exchanges and with an absence of efficient market markers). This is absolute nonsense.
Process involved is as follows:
Step 1. Transfer INR via wire transfer to Binance
Step 2. Buy USDT on Binance
Step 3. USDT selling at premium on the other exchange
Step 4. Transfer USDT to your other exchange wallet
Step 5. Sell it at a premium on the other exchange
The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that we are not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. CA Mitesh and Associates is Mumbai's leading Cryptocurrency Taxation Firm which is committed to helping people navigate complex tax laws and banking regulations. Our main aim is to assist the individuals with applicable laws & regulations compliance and providing support at each & every level to make sure that they stay compliant and grow continuously. For any query, help or feedback you may get in touch here - Appointment with CA
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