BTC/USDT: Understanding the Risks and Implications of Trading with Stablecoins

The BTC/USDT trading pair is a way to price one Bitcoin in units of USDT, a stablecoin designed to maintain a value relative to the U.S. dollar. In this pair, Bitcoin is the base asset and USDT is the quote asset, meaning that a price of 100,000 means buying 1 BTC requires 100,000 USDT.

The distinction between using USDT instead of actual U.S. dollars matters because it affects how prices are read, which asset is spent on a purchase, and the risks a trader holds after a sale. When selling BTC/USDT, a trader has not necessarily moved funds into a bank account or redeemed a stablecoin for dollars; they now hold USDT on the relevant platform or in the wallet to which it was withdrawn.

The risks embedded in a BTC/USDT position go beyond just Bitcoin volatility. Buying BTC with USDT leaves the buyer exposed to Bitcoin volatility, while selling BTC changes that exposure into USDT exposure. Other risks include exchange and custody problems, loss of account access, private-key handling, cybersecurity incidents, market manipulation, and liquidity risk.