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Bitcoin near a bottom? The strange signal sent by USDT

USDT lost nearly 4 billion dollars in market capitalization over 60 days. On paper, this is bad for Bitcoin: fewer stablecoins means less liquidity available to buy. Yet, CryptoQuant also sees a possible seller exhaustion signal. The…

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Market Context

Bitcoin

BTC

$63,105

-0.50% 24h

Layer Index

Fear

Layer Index

↓ 6 pts in 24h

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In Brief

USDT lost nearly 4 billion dollars in market capitalization over 60 days.
This extreme contraction may signal that selling pressure on Bitcoin is nearing its limit.
A true bottom will still have to be confirmed by the return of liquidity and buyers.

Bitcoin absorbs a rarely seen liquidity contraction

The 60-day variation in USDT market capitalization is moving at extreme levels. This contraction comes as several analysts begin to consider a bottom for Bitcoin, after the BTC drop below 60,000 dollars at the beginning of July. The 30-day moving average of this variation was about -4.88 billion dollars on Monday. The low dates back to July 13, with -5.72 billion over 60 days. More recently, nearly 870 million additional dollars left the USDT supply in eleven days.

This is not just a detail. Stablecoins serve as a holding tank for the crypto market. An investor can sell Bitcoin, stay in USDT, then quickly return to BTC. When stablecoin supply decreases, part of this liquidity completely leaves the ecosystem. The classic interpretation is thus bearish. Less USDT available means less capital immediately available to support a rebound.

CryptoQuant observes that sustained expansion phases of Tether generally accompany periods where Bitcoin performs better. But the current level is starting to tell a different story.

USDT drops so much that the signal becomes almost bullish

The largest 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 withdrawing capital, the market eventually also exhausts some of those who wanted to exit.

The movement does not concern only Tether. The stablecoin market is undergoing its strongest contraction since the Terra collapse. Nearly 15 billion dollars have left this segment in less than three months. USDT is therefore part of a broader drying up. A shortcut must be avoided though. A drop in USDT does not make Bitcoin rise. Both can simply suffer from the same distrust.

An investor can sell their BTC, briefly switch to stablecoins, then finally convert their funds to dollars. In this case, Bitcoin falls and USDT supply contracts almost at the same time. The paradox only appears when this flight becomes extreme. A further drop in USDT would still be negative for short-term liquidity. But if the contraction nears historical limits, it can signal that the most aggressive selling phase is also coming to an end.

Another indicator draws attention. It’s Bitcoin’s weekly RSI improving while the price remains fragile. This bullish divergence recalls a configuration seen around the end of the 2022 bear market. It does not announce an automatic rebound. It simply says that the drop may be losing strength.

A Bitcoin bottom without buyers is still worth little

Seller exhaustion is not enough to start a new bullish cycle. Bitcoin can stop falling sharply and still remain stuck for several weeks in a low zone. It can also register one last low before demand truly resumes.

This is where the market will have to provide proof. A return of stablecoin capitalization would be a first signal. A sustained rebound in spot purchases would be another. Institutional flows will also have to hold for several sessions, not just produce a spectacular day.

US Bitcoin ETFs are already showing some signs of resilience. Capital has returned despite BTC still hesitating. This demand remains too limited alone to offset the general contraction in liquidity.

Bitcoin may have passed part of the exhaustion test. It has not yet passed that of demand. The recent return of capital to Bitcoin ETFs is a first clue, not a validation. If USDT stops contracting and purchases return in parallel, the hypothesis of a bottom will become much stronger. For now, the market sells less easily. It does not yet buy enough.

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Fascinated by Bitcoin since 2017, Evariste has continuously researched the subject. While his initial interest was in trading, he now actively seeks to understand all advances centered on cryptocurrencies. As an editor, he strives to consistently deliver high-quality work that reflects the state of the sector as a whole.

DISCLAIMER

The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.

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