USDT Liquidity Drain Raises Concerns of Crypto Market Correction

The crypto market has been experiencing a significant liquidity drain in USDT, with exchange reserves falling from $60 billion to $51.1 billion over two months. This trend has stalled the market's gains in January and February, according to CryptoQuant analyst TopNotchYJ.

Without a stabilization in stablecoin reserves and a return of active participants, the pain is likely to persist, TopNotchYJ warns. He notes that the $50 billion level is the last line of defense for USDT balances on trading venues, and if it slips below this threshold, the next support would be around $44 billion.

A drop below $50 billion could trigger heavy selling, sending leading assets such as Bitcoin, Ethereum, and XRP into a deep correction. The analyst emphasizes that Tether is the market's main liquidity supplier, making its health crucial for the market's stability.