USDT supply decreased by $1.3 billion: profound impact on Bitcoin liquidity

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Tether (USDT) has seen its supply decrease by $1.3 billion in the past ten days, raising concerns about liquidity in the cryptocurrency market. As a key component of market liquidity, the contraction of USDT may affect market operations, especially as Bitcoin approaches support levels.

USDT Supply Decline

Recent data shows that the circulating supply of USDT has fallen from $140.5 billion to $139.2 billion, a change primarily influenced by the following factors:

Regulatory Pressure: Following the collapse of FTX, regulatory scrutiny has intensified, leading investors to redeem USDT in favor of fiat currency.

Weakened Demand: A decline in trading volume indicates a reduced demand for stablecoin liquidity, associated with stagnation in Bitcoin prices.

Macroeconomic Factors: A strong dollar and rising treasury yields have prompted capital to flow out of the crypto market.

This change may indicate that the market is undergoing a deep adjustment.

Impact of USDT Decline on Bitcoin

The reduction in USDT supply directly limits the upward movement of Bitcoin prices. Bitcoin is hovering around $94,900 with declining trading volume, indicating weakened buying pressure in the market. The RSI is at 45.44, suggesting a bearish market sentiment.

Widespread Effects of Liquidity Contraction

The decrease in USDT supply limits market liquidity and may lead to the following impacts:

Decreased Market Depth: Reduced liquidity exacerbates volatility, limiting the activities of institutional traders.

Increased Volatility of Altcoins: Liquidity contraction can affect the price volatility of smaller assets, potentially leading to stagnation in the DeFi and NFT markets.

Market Cooling: If stablecoin supply cannot recover, market activity may stagnate, delaying price rebounds.

Conclusion

The contraction of USDT supply reflects multiple factors such as regulatory pressure, weakened investor confidence, and macroeconomic uncertainty, which may limit market liquidity and exacerbate market volatility. Unless supply recovers, the market may face further adjustments, impacting overall recovery.

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