Will $450 Million of USDT Inflow Drive Bitcoin Above $100,000?
February witnessed a substantial influx of $450 million worth of Tether (USDT) flowing into cryptocurrency exchanges, indicating a resurgence in risk appetite as stablecoin liquidity rises. Could this surge in sidelined capital bolster bid support for Bitcoin (BTC) and potentially trigger a breakthrough in its price?
Historically, the price movements of BTC have closely followed the patterns in USDT supply. Back in mid-December, when BTC reached its then-record high of $108,000, the circulating supply of USDT also peaked at 140 billion.
However, a shift in market sentiment led to BTC retracing to $91,000, aligning with a noticeable 3 billion decrease in USDT supply to 137 billion, implying a move towards hedging activities.
Currently, the circulating supply of USDT has surged to an all-time high of 141 billion, with fresh capital inflows into exchanges. Should this capital rotation translate into elevated spot demand, the price of BTC may surpass the $100,000 mark.
On the flip side, if a significant portion of this influx is allocated to leveraged trading rather than genuine buying, it could potentially create a liquidity trap. Such a scenario may lead to a temporary price surge lacking substantial support, which could result in a sharp reversal as highly leveraged positions are liquidated.
Is the USDT Inflow Contributing to Authentic Demand or Excessive Leverage?
Following BTC’s recent attempt to breach $100,000, the Estimated Leverage Ratio (ELR) has been steadily increasing, reaching new highs.
Simultaneously, the influx of BTC into exchanges exceeds outflows, indicating a weaker spot demand. With heightened leverage in play, BTC faces an increased risk of cascading liquidations in long positions if prices experience a decline.
Despite the fear-driven sentiment prevailing in the market, coupled with significant unrealized profits and subdued accumulation in BTC exchange-traded funds (ETFs), the surge in USDT inflows may not necessarily be a bullish indicator for BTC at this stage.
Instead, the rising leverage and weakening spot demand elevate the vulnerability of BTC’s price action in the short term, necessitating a cautious approach towards assessing the market dynamics.