How Tether traders are signalling that crypto prices will go even higher

Liquidity in crypto market is rising alongside prices. The circulating supply of US dollar stablecoins has risen modestly lately, which could be good news for investors.

Let’s dig in!

Slow and steady

Liquidity, how easily assets can be converted into cash, is crucial in financial markets. Crypto is no different.

In crypto markets, the amount of money in stablecoins is of huge importance, Noelle Acheson, author of the Crypto is Macro Now newsletter and former head of research at Genesis, said on Tuesday.

“This matters because dollar-backed stablecoins are still the main trading pair for crypto assets, with almost half based in Tether’s USDT stablecoin,” Acheson wrote.

An increase in the amount of stablecoins circulating, particularly Tether’s USDT stablecoin, could be interpreted as an increase in demand for crypto assets, she said.

Tether’s circulating supply has risen to a record of just under $90 billion, up from $66 billion at the beginning of 2023, according to DefiLlama data.

While Tether has soared in 2023, rival stablecoin USDC has seen massive outflows, which has partially offset the increase in total stablecoins in circulation. The net impact is still positive.

“Nevertheless, the moves need to be put into context — the trend seems to be up, which should be bullish for crypto assets as it signals growing investor interest,” Acheson said.

There is a caveat. The total amount of stablecoins in circulation is still below where it was in January when it was around $137 billion. While it’s down to $130 billion now, it has arrested its decline and is rising again.

Bitcoin’s liquidity issues have been evident several times this year. Bitcoin swung from $20,000 to $24,000 and back to $20,000 again in February and March.

Why? Because markets weren’t liquid enough, Acheson said.

When markets are less liquid, traders find it harder to execute trades at the desired price. There are less active participants, so traders are forced to take what they can get if they want to trade.

As a result, price moves can be more exacerbated during times of low liquidity.

In September, crypto research firm Kaiko noted the lack of liquidity and how activity was concentrated on a handful of exchanges outside the US.

If growing demand for stablecoins is anything to go by, then recent price moves could be supported by better liquidity conditions going forward.

Crypto market movers

• Bitcoin traded above $42,700 by 3 pm in the UK, up 3% since Monday.
• Ethereum added 0.8% to $2,230 over the past day.

What we’re reading

• Did traders flee Binance after its $4.3bn settlement? It’s complicated — DL News
• How to track stablecoins — DL News
• MicroStrategy’s Bitcoin Holdings Surpass $2 Billion In Profits As Bitcoin Tops $42,000 — Milk Road
• Coinbase NFT And OpenSea Address Web3 Vulnerability Alert From Thirdweb — Milk Road
• FTX-Linked Wallet Unstakes $90 Million Solana, Sends It to Coinbase — Unchained

Adam Morgan McCarthy is DL News’ London-based Markets Correspondent. Got a tip? Reach out at adam@dlnews.com.