Is Bitcoin Approaching a Bottom? The Paradoxical Signal from USDT

USDT has lost nearly $4 billion in market capitalization over 60 days. On paper, this is bad for Bitcoin: fewer stablecoins mean less liquidity available for purchases. However, CryptoQuant also sees a possible signal of seller exhaustion. The market lacks fuel, but it may soon lack sellers.

In brief

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

Bitcoin Experiences Rare Liquidity Contraction

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

This is not just a detail. Stablecoins serve as a waiting room for the crypto market. An investor can sell Bitcoin, stay in USDT, and then quickly return to BTC. When the supply of stablecoins decreases, part of that liquidity leaves the ecosystem entirely. The classic reading is therefore bearish. Less USDT available means less capital immediately mobilizable to support a recovery.

CryptoQuant also notes that sustainable expansion phases of Tether generally accompany periods when Bitcoin performs better. But the current level begins to tell a different story.

USDT is Declining So Much That the Signal Becomes Almost Bullish

The strongest contractions of USDT do not always occur at the beginning 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 also ends up exhausting some of those who wanted to exit.

The movement does not only concern Tether. The stablecoin market is undergoing its most significant contraction since the collapse of Terra. Nearly $15 billion has left this segment in less than three months. Thus, USDT is part of a broader drying up. However, one must avoid a shortcut. A decrease in USDT does not automatically lead to an increase in Bitcoin. The two can simply suffer from the same distrust.

An investor can sell their BTC, briefly move into stablecoin, and then ultimately convert their funds into dollars. In this case, Bitcoin drops, and the supply of USDT contracts almost simultaneously. The paradox only appears when this outflow 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 Draws Attention

There is the weekly RSI of Bitcoin, which is improving while the price remains fragile. This bullish divergence recalls a setup observed around the end of the bear market in 2022. It does not announce an automatic rebound. It simply indicates that the decline may be losing strength.

A Bitcoin Bottom Without Buyers Is Not Worth Much Yet

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

This is where the market will need to provide evidence. A return of stablecoin capitalization would constitute a first signal. A sustainable recovery of spot buying would be another. Institutional flows will also need 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 a still hesitant BTC. However, this demand remains too limited to compensate, on its own, for the general contraction of liquidity.

Bitcoin may have passed part of the exhaustion test. It has not yet passed the demand test. The recent return of capital to Bitcoin ETFs is a first indication, 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 is selling less easily. It is not yet buying enough.