USDT lost nearly $4 billion in capitalization over 60 days. On paper, this is bad for Bitcoin: fewer stablecoins means less liquidity available to buy. However, CryptoQuant also sees this as a possible signal of seller exhaustion. The market is running out of fuel, but it may soon run out of sellers.
In brief
- USDT lost nearly $4 billion in capitalization over 60 days.
- This extreme contraction may signal that selling pressure on Bitcoin is approaching its limits.
- A real bottom will still have to be confirmed by the return of liquidity and buyers.
Bitcoin experiences a rarely seen liquidity contraction
The 60-day change in USDT capitalization is moving at extreme levels. This contraction comes as several analysts begin to consider a bottom for bitcoin, after BTC fell below $60,000 in early July. The 30-day moving average of this change was around -$4.88 billion on Monday. The low was on July 13, with -5.72 billion over 60 days. Most recently, almost $870 million more left the USDT supply in eleven days.
It’s not just a detail. Stablecoins serve as holding funds for the crypto market. An investor can sell bitcoin, stay in USDT, and then quickly move back into BTC. When the supply of stablecoins decreases, some of that liquidity leaves the ecosystem entirely. The classic reading is therefore bearish. Less USDT available means less capital that can be immediately mobilized to support a recovery.
CryptoQuant observes moreover that phases of sustainable expansion of Tether generally accompany periods when Bitcoin is doing better. But the current level is starting to tell something else.
USDT falls so much that the signal becomes almost bullish
The biggest contractions in USDT do not always occur at the start of bear markets. They sometimes appear when the purge is already well advanced. This is where the signal becomes interesting: by dint of withdrawing capital, the market also ends up exhausting some of those who wanted to exit.
The movement is not just about Tether. The stablecoin market is going through its biggest contraction since the collapse of Terra. Nearly $15 billion left this segment in less than three months. USDT is therefore part of a broader drying up. However, a shortcut should be avoided. A drop in USDT does not cause bitcoin to rise. Both may simply experience the same mistrust.
An investor can sell their BTC, briefly switch to a stablecoin and then finally convert their funds to dollars. In this case, bitcoin falls and the supply of USDT contracts almost at the same time. The paradox only appears when this escape becomes extreme. A further decline in USDT would still be negative for short-term liquidity. But if the contraction approaches its historical limits, it may signal that the most aggressive selling phase is also coming to an end.
Another indicator attracts attention. This is bitcoin’s weekly RSI improving while the price remains fragile. This bullish divergence is reminiscent of a configuration observed around the end of the 2022 bear market. It does not herald an automatic rebound. It simply says that the decline may be losing strength.
A bitcoin floor without buyers is still not worth much
Seller exhaustion is not enough to start a new bull cycle. Bitcoin can stop falling suddenly and still remain stuck in a low zone for several weeks. It may also register a final dip before demand really picks up.
This is where the market will need to provide evidence. A return to the capitalization of stablecoins would constitute a first signal. A lasting recovery in spot purchases would be another. Institutional flows will also need to hold multiple sessions, not just produce one spectacular day.
US Bitcoin ETFs are already showing some signs of resistance. Capital returned despite BTC still hesitant. However, this demand remains too limited to offset, on its own, the general contraction in liquidity.
Bitcoin may have passed part of the exhaustion test. It has not yet passed the request. The recent return of capital to Bitcoin ETFs constitutes a first indication, not a validation. If USDT stops contracting and buying returns in tandem, the bottom hypothesis will become much stronger. For the moment, the market is selling less easily. He still doesn’t buy enough.
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