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Correlation between Bitcoin and Tether supply: A leading Bitcoin indicator?

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Correlation between Bitcoin and Tether supply

Let’s look at what effect does tether printing or tether revoking have on the price of Bitcoin. Before I would like to explain what is Tether for those who may not know.

As you can see below money flow visualization, you can buy Bitcoin and other cryptocurrencies with US Dollar, Japanese Yen, Euro, British pound or you can use Stable coin USDT or Tether, TUSD, USDC, PAX. The reason why stable coin came into the market because there are a lot of rules and regulations with the U.S Dollar. And not many exchanges are allowed to the U.S dollar for deposit and withdrawals. So what some exchanges did was, if they were not allowed to use the BTCUSD pair as a trading asset they would create BTC-USDT pair. Many big exchanges like Bitfinex, Binance did this so that you can trade Bitcoin to the dollar.

Money Flow Map

USDT money flow

Data Source: Coinlib.io

Although it is important for you to know that USDT is just another cryptocurrency. They claim that the circulation is backed by an equivalent amount of traditional fiat currencies like the dollar, the euro or the Japanese yen, which are held in a designated bank account. You can see the above money flow map which shows that the majority flow into bitcoin and other cryptocurrencies is from Tether, instead of U.S dollar. Tether is a very dominant force here. So whenever something has this much of an impact on price and is used this often, I think that it is pretty important to look at the historical pattern that Tether has on Bitcoin.

BTC & Tether Market Cap Correlation Chart
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Three Types Of Market Conditions
  • Extremely Bearish: From 7th October 2018 tether market cap started to go down & it was a pretty big drop, 30days after that Bitcoin had a huge drop in price.
  • Extremely Bullish: On 1st April 2019 tether had a sudden rise in market cap which was pretty big and bitcoin started rallying and broken all the resistances up to 14k, Also on 4th Jan 2020 tether market cap jumped suddenly and the price started going up again.
  • Choppy Bearish Market: When we look at Tether’s effect on Bitcoin price chart, Before 7th October 2018 tether market cap was going sideways and Bitcoin had a choppy bearish market. Then another sideways supply from 19th July 4th Jan & marked turned choppy bearish.

Only look for significant change in tether market cap

When using Tether supply to predict the long term price of Bitcoin or any upcoming significant reversal, you should only look for significant changes in market cap. Using lower timeframe will increase noise & also it can confuse you. This is not an ideal method for day trading. But probably it can give you a good hint about the mid-long term market climate.

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