Algorithmic stablecoin Tether has lost its peg at Binance.US as bitcoin price rallied past $31,000 this morning. According to data from crypto prices aggregation site CoinGecko, bitcoin price is trading at $31,152.69, up 3.5% from a day earlier, right now and Tether’s peg is intact at $1.

There is a different story playing out at Binance.US, however. Bitcoin is changing hands for $29,820.10, an increase of more than three percent from yesterday’s prices while Tether’s peg has become lopsided at $0.9632.

A Profitable Disconnect

Binance.US’s disconnect from the rest of crypto markets began began two days ago, when bitcoin price began trading at a premium of as much as $138,000 at the exchange. Tether’s peg began sliding at the same time and bottomed out at $0.9580 earlier this morning before recovering.

A loss in Tether’s peg means that the last of departing investors from Binance.US are busy raking in profits because they can exchange the stablecoin for $1. It is important to remember that the exchange is one of the few places where holders of the notoriously difficult-to-redeem Tether can actually do so.

But those halcyon days have come to an end. Binance.US was charged by US regulators earlier this month and has been witnessing a constant outflow of investors since. Its banking relationships are in tatters and it was planning to suspend USD withdrawals.

Not surprisingly, investors are fleeing the exchange and its share of US crypto trading is down to 1.5%, per research firm Kaiko. Low liquidity conditions are optimal for investors to nudge, or in this case push, prices with less capital.

Earlier this month, Binance encouraged traders at its US subsidiary to convert their tokens to stablecoins. This might be a parting gift from the exchange to its traders.

Crypto Derivatives Turn Bullish

The sudden volatility in bitcoin price has excited investors in its derivatives. According to data from the Chicago Mercantile Exchange (CME), the price of bitcoin and ether futures jumped by nearly 20% in the last week. Options volatility has also spiked. Calls are being bid over puts. [Calls are bullish bets on bitcoin’s future price movement and puts are bearish bets].

The aggregated open interest of bitcoin options across derivatives exchanges has skyrocketed from $7.31 billion to $11.37 billion since 28 May, according to data collected by online publication The Block.

A Puzzling Bet

The bullish bets by traders are puzzling.

There is no guarantee of an SEC approval for BlackRock’s bitcoin ETF. The bad news from within the cryptocurrency ecosystem shows no signs of stopping, the latest being Prime Trust’s problems. Investors are running away from crypto . Liquidity is low. And, bitcoin price moves have begun resembling those of the many worthless tokens that proliferate cryptocurrency.

Do the traders know something that others don’t?

Maybe not.

Even though open interest in bitcoin derivatives has surged, overall crypto derivatives trading volumes are down. For example, trading volumes at CME for crypto derivatives are only $426.37 million this month so far, as compared to $749.5 million in May.

The situation is slightly better at other exchanges with $17.82 billion worth of trading volume this month as compared to $19.8 billion last month. But they are unregulated. Research has shown that unregulated exchanges pump up trading volumes by conducting wash trades.

The combination of increased open interest and declining volumes suggests a weak market. In other words, conditions already prevalent in low liquidity crypto spot markets are being replicated at their derivative cousins.

Another One Bites The Dust

The decks are almost clear for traditional finance or TradFi to take over from dubious crypto entities. Prime Trust, a crypto custodian, is the latest to fall. Nevada’s state regulator has issued a “cease and desist” order against the company alleging that it is unable to honor customer withdrawals. This is a story that has been played out many times in crypto in the last one year and regulated custodians, a list that includes the likes of BNY Mellon, are waiting in the wings.

TrueUSD, a stablecoin that has flown under the radar for most of its existence, capitalized on the news cycle and announced that it had no exposure to Prime Trust. It has paused real-time attestations of reserves backing its stablecoin earlier this week. The stablecoin has multiple red flags and is being promoted by Binance as a replacement for its own stablecoin, BUSD.

Crypto, of course, consists of make believe tokens without inherent value. But it is an interesting and fun theoretical exercise to imagine what happens if TUSD falls by the wayside next. Its biggest trading volumes are against unregulated stablecoin Tether and they occur at Binance, another crypto exchange that is in regulatory crosshairs.

Together, the triumvirate command extraordinary power in crypto. Binance is the crypto world’s biggest exchange by trading volume and Tether is its biggest stablecoin. TUSD is no pushover either, coming in at third among stablecoins which, by the way, are responsible for 75% of all trading volume in crypto.