- There is a significant correlation between USDT supply and BTC price.
- Could the increase in USDT inflows lead to a breakout for Bitcoin?
In February, $450 million worth of Tether [USDT] entered exchanges, signaling renewed risk appetite due to rising stablecoin liquidity. This influx of sidelined capital might provide bid support for Bitcoin [BTC] and trigger a breakout.
Historically, BTC price movements have mirrored USDT supply trends. For example, in mid-December, when BTC reached $108K, USDT’s circulating supply also peaked at 140 billion.
However, a shift occurred as BTC retraced to $91K, coinciding with a 3 billion decrease in USDT supply to 137 billion, indicating hedging activity.
Source: Glassnode
Currently, the USDT supply has reached a new all-time high of 141 billion, with fresh inflows into exchanges. If this rotation of capital translates to increased spot demand, BTC may surpass $100K.
However, if most of this capital fuels leveraged trades instead of actual buying, it could lead to a liquidity trap. Prices may temporarily rise without real support, resulting in a sharp reversal as overleveraged positions are closed.
Is the demand driven by USDT genuine or just leverage?
Since BTC’s last attempt to break $100K, the Estimated Leverage Ratio (ELR) has been increasing, posting higher highs. At the same time, BTC inflows to exchanges exceed outflows, indicating weak spot demand. With more leverage in play, BTC faces a higher risk of long liquidation cascades if prices decline.
Source: CryptoQuant
With market sentiment in the fear zone, high unrealized profits, and weak BTC ETF accumulation, the surge in USDT inflows may not be bullish for BTC yet.
Increasing leverage and weak spot demand raise the risk of long liquidation cascades, making BTC’s price action more fragile in the short term. Caution is advised.