USDT Signal Sparks Fears of Further Downside for Bitcoin

A signal from Tether's USDT has sent shockwaves through the cryptocurrency market, leaving investors wondering about the future of Bitcoin.

According to analysts, the 60-day market cap change for USDT has dropped below -$3 billion, a threshold that was only breached once before in late 2022. During this period, Bitcoin's price was bottoming out at around $16,000, and widespread fear and forced selling were driving down prices.

USDT is often seen as the 'dry powder' of the crypto ecosystem, with its supply expanding when new capital enters exchanges and risk assets. Conversely, a contraction in USDT supply can indicate forced redemptions or investors moving funds out of the system.

In this case, the multibillion-dollar contraction in USDT supply is seen as a significant indicator for Bitcoin's price. As a liquidity-sensitive asset, Bitcoin tends to react strongly to changes in USDT supply.

Analysts believe that the current risk-reward profile depends on whether the stabilization of USDT flows materializes. If the contraction continues, downward pressure could persist. However, if flows flatten or reverse, the asymmetry shifts rapidly in favor of upside.