Tether market cap has increased from $ 2 billion in February 2019 to $ 20 billion. What lies behind this 10x growth is based on a number of factors such as the increase in Bitcoin OI and trade volume and the rise of DeFi. This is a story where several other stories are intertwined and it is among the top 30 cryptocurrencies of almost the entire market.

Is there a link between the Tether supply mechanism and Bitcoin?

Although Tether’s supply mechanism makes it difficult to distinguish between the USD or any other fiat currency and Tether, Bitcoin’s impact on its price is enormous. The same was true for Tether in September 2020, when Bitcoin’s reserves were dwindling. Tether reserves in exchanges fell and supply shortages emerged.

In fact, Tether reserves fell several times in 2020, the most significant drop was in November 2020, when the price of Bitcoin surged towards the new ATH and found price discovery beyond $ 19,000. The decline in tether reserves has traditionally been linked to Bitcoin whales and traders withdrawing money from exchanges, which eases selling pressure on Bitcoin and makes room for vertical growth in price.

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Will it have an impact on BTC?

This is a very popular narrative. But at this critical point where the Bitcoin price is at unprecedented levels (over $ 23,000), will the supply of Tether to the stock markets have the same effect as before?

There is no evidence that there is a direct relationship between the supply of Tether and the price of Bitcoin. However, increased demand from institutional investors led to an increase in Bitcoin’s price volatility. Increased volatility and demand makes Tether more traded, and this can happen in both directions. Since the fall in supply in the past also corresponded to decreases in Bitcoin’s price action, it is not entirely certain that a decrease in Tether’s supply will create a bullish situation for Bitcoin.

On December 20, 2020, the supply percentage of the vehicle circulating in Bitcoin reached the lowest level in 4 months. At the current price level, the decreasing supply of the most widely used stablecoin moved from exchanges explains the increase in Bitcoin’s price.

Another measure, Bitcoin’s net unrealized profit has also reached a high level, indicating an increase in selling pressure on Bitcoin. However, it should be noted that the decreasing supply of Tether creates a partially rising situation for the price of Bitcoin. Unless Bitcoin OI or stock market trading volumes signal a decline, a drop in supply can aid price discovery beyond the current price level.


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