Key Points
- USDT’s demand and supply signals often conflict, making it a crucial asset to monitor.
- Amid market volatility, stablecoins like USDT are becoming increasingly attractive alternatives.
USDT, also known as Tether, often presents conflicting demand and supply signals. Hence, it is important to keep a close eye on this digital asset.
With the current market volatility, stablecoins like USDT are becoming more appealing.
The Rise of USDT
Often referred to as the digital dollar, USDT has managed to maintain its $1 peg. It has evolved from a niche asset to a highly demanded tool for seamless transactions. The global stablecoin supply recently reached a record $190 billion, with over $60 billion added since the start of 2024. However, the demand and supply dynamics in the crypto world give this a different perspective.
USDT is the most widely used stablecoin in the crypto market and has served as a safety net during unstable market conditions. The trend is currently repeating.
In early December, Bitcoin surpassed $100K and reached a new all-time high of $104K. This led to a decrease in USDT dominance to a 6-month low of 3.80%. However, with the uncertainty around Bitcoin’s next market peak, the volatility is increasing. This could lead to more investors seeking the stability of USDT.
USDT Demand and Supply
From an economic perspective, supply increases to meet the rising demand. The stablecoin supply reaching $190 billion, with $60 billion added this year, indicates a rapidly growing demand for USDT. In November, whales increased their USDT accumulation, acquiring over $2 billion across four separate time periods. This strengthens the role of stablecoins as a hedge against high-risk assets.
However, rising USDT demand doesn’t necessarily mean a market downturn. It could potentially indicate the opposite. For instance, after the election results, when whales acquired over $2.5 billion in USDT, it was a precursor to a major rally.
The chart above indicates that whales have significantly reduced their USDT holdings in the last two days, from over $2 billion to a -$240 million position. This shows strong conviction in upcoming gains. However, the retail sector seems to be taking a different approach. There has been an increasing withdrawal of USDT from exchanges since the start of December.
Bitcoin’s four failed attempts to break $100K, concerns over its overvaluation, and a lack of FOMO are making investors more cautious. Thus, traders are either chasing quick, big gains in mid and low-cap tokens or seeking stablecoins as a safer bet.
