Monday marked a historic moment in traditional markets, with the price of West Texas Intermediate oil futures going into negative territory for the first time ever. 

Contracts for May delivery, expiring on Tuesday, collapsed below -$40 per barrel at one point. In other words, sellers were willing to pay as much as $40 to people to take a barrel off their hands. Excess supply in the midst of a massive global downturn has led to a storage problem for crude. Some traders are even making $2 offers per barrel on the spot market. 

The breathtaking crash in oil prices was taken as a warning sign to U.S. stocks and bonds: a recovery, where demand for energy would put those stockpiled barrels to use, appears to be further in the distance than anticipated. The S&P 500 index slipped 1.7 percent while safe-haven U.S. Treasury bonds saw an influx of dollars that pushed two-year yields down to 5 percent. Bond yields fall as prices rise. 

Gold also gained on the day. On Monday, the precious metal climbed 0.86 percent to $1,713.40 per troy ounce. 

Contracts-for-difference on gold since April 17. Source: TradingView

Oil also took its toll on the FTSE 100 index toward the end of its trading day Monday. Though the British equity index closed up less than a percent, it started off with strong gains but started to tumble in afternoon trading on concerns about the energy sector. 

Several hour earlier in Asia, the Nikkei 225 slipped 1.15 percent. The dip arrives as Japan’s Ministry of Finance reported poor trade numbers, with exports declining by more than 11% while imports dropped by 5% in March. 

Crypto markets

Bitcoin prices merely shrugged at the turmoil in the oil markets, slipping 4.4 percent over the past 24 hours, according to CoinDesk’s Bitcoin Price Index as of 21:35 UTC (5:35 p.m. EDT) Monday.

The price for 1 BTC fell below its 10-day and 50-day moving averages at 11:00 UTC (7 a.m. EDT), with trading dropping below $7,000, eventually dipping to around $6,920 levels on exchanges such as Coinbase. 

The world’s oldest cryptocurrency was then able to return to the $7,000 level before large amounts of selling volume at 18:00 UTC (2 p.m.PM EDT) pushed prices down to around the $6,830 range. 

Bitcoin trading on Coinbase since April 19. Source: TradingView

Most major digital assets are primarily in the red on CoinDesk’s big board for the day. 

Ether slipped 5.8 percent. Large losers include dash (DASH) dropping 8.9 percent, bitcoin gold (BTG) down 7 percent and bitcoin sv (BSV) dipping 6 percent. One notable winner today is stellar (XLM), in the green 1.3 percent. 

Tether breaks $7 billion

The market capitalization of tether (USDT), the largest stablecoin in the cryptocurrency markets, surpassed $7 billion this past week, well more than double where it was a year ago. As tether is pegged at roughly 1:1 to the U.S. dollar, its market cap is a reflection of how much is believed to be held in assets against each coin. 

With an additional 120 million printed on April 18, USDT currently has a circulating supply of 6,992,102,061 USDT. Due to USDT’s slight price premium above the U.S. dollar, the current market cap is around $7 billion, according to data from aggregator Nomics. Tether says it has $7.1 billion in assets as of Monday.   

Tether price and volume over the past year. Source: Nomics

Tether’s price is often more than a dollar because of the convenience it provides some of its owners, according to Vishal Shah, a crypto options trader and founder of derivatives exchange Alpha5. “Tether trades at a premium to USD and highlights a capital flight situation in which there is limited access to hard currency,” he told CoinDesk. 

Detailed tether dollar volume since 1/1/19. Source: CoinDesk Research’s Christine Kim Source: CoinDesk Research

Some 74 percent of all bitcoins traded on major exchanges are done against tether, according to data site CryptoCompare. 

USDT’s ubiquity on cryptocurrency exchanges offsets concerns traders may have about the stablecoin, Shah noted. “Tether is the most easily accessed USD-proxy stablecoin, and arguably has a more colored background than some of its direct competitors.”

Indeed, that background includes questions about provenance of the assets backing USDT. 

Competing stablecoins like USD Coin (USDC) have independently audited financial statements showing custody accounts with dollars backing blockchain-based stable assets, the idea being redemption of one USDC equals one dollar from Centre, the group that issues the stablecoin backed by Coinbase and Circle. 

“Customers holding USD Coin and who open accounts with a Centre member issuer are always able to redeem 1 USD Coin for $1 USD,” said Josh Hawkins, vice president for communications at Circle. 

“USD Coin holders also gain the assurance that the funds are fully reserved, as the Centre Consortium requires that issuers be regulated financial institutions, and also that reserves backing USD Coin are always held at 100%,” he added. 

The market capitalization for USDC is also growing, now at $740 million. Source: Circle

In comparison, Tether’s terms of service explicitly state that holders of USDT could experience redemption in some other security or asset than dollars should the stablecoin become illiquid.

Source: Tether Terms of Service

With the growth of banking-friendly USDC, it’s clear regulatory issues surrounding stablecoins will come to a head, says David Johnston, Managing Director of Yeoman’s Capital. Johnston is concerned that solvency could be a problem in the future with Tether, a problem that plagued early bitcoin exchange Mt. Gox, the aftermath of which is still an ongoing legal affair. 

“USDT is going the way of Mt. Gox, if they don’t become either fully decentralized or a regulated extension of the central banks,” Johnston told CoinDesk. 

He also mentioned the 2019 draft report on stablecoin risks from a G7 working group as an indication stablecoin regulation could soon be on the way.  “USDT has existed in the gray area between centralized and decentralized. With these new recommendations from the Financial Stability Board it’s clear that this gray area will soon no longer exist,” Johnston said. 

Requests for comment from Tether or Bitfinex executives were made but not returned as of press time.

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