- USDT supply and BTC price has shown a significant correlation.
- Are rising USDT inflows setting the stage for Bitcoin to break out of its slump?
With $450 million Tether [USDT] flowing into exchanges in February, rising stablecoin liquidity signals renewed risk appetite. Could this influx of sidelined capital strengthen bid support for Bitcoin [BTC] and spark a breakout?
BTC price action has historically mirrored USDT supply trends. In mid-December, as BTC hit $108K (its then-all-time high), USDT’s circulating supply also peaked at 140 billion.
However, a shift in momentum saw BTC retrace to $91K, coinciding with a 3 billion decline in USDT supply to 137 billion – signaling hedging activity.
Source: Glassnode
Notably, USDT supply has surged to a new all-time high of 141 billion, at press time, accompanied by fresh inflows into exchanges. If this capital rotation translates into spot demand, BTC could break past $100K.
However, if most of it fuels leveraged trades instead of actual buying, it could create a liquidity trap. In this scenario, prices rise temporarily but lack real support, leading to a sharp reversal as overleveraged positions close.
Is USDT fueling genuine demand, or just leverage?
Since BTC’s last attempt to breach $100K, the Estimated Leverage Ratio (ELR) has been climbing, posting higher highs.
Meanwhile, BTC inflows to exchanges are higher than outflows, showing weak spot demand. With more leverage in play, BTC faces a higher risk of long liquidation cascades if prices drop.
Source: CryptoQuant
With market sentiment in the fear zone, high unrealized profits, and weak BTC ETF accumulation, the surge in USDT inflows isn’t necessarily bullish for BTC yet.
Instead, rising leverage and weak spot demand increase the risk of long liquidation cascades, making BTC’s price action more fragile in the short term. Caution is warranted.
