Stablecoins like USDT serve as a bridge between fiat currencies and digital assets. A rise in their supply often comes before increased activity in the crypto market.
Tether’s stablecoin, USDT, hit a market capitalization of $120 billion for the first time on Monday, indicating a potential increase in activity in the crypto market.
Stablecoins are designed to maintain a stable value, typically pegged to fiat currencies like the U.S. dollar, and serve as a medium of exchange between fiat and digital assets. A rise in stablecoin supply often precedes increased activity in the crypto market, as investors prepare to move into other digital assets.
Earlier this year, a similar situation occurred when Tether minted $1.3 billion in USDT over five days. Afterward, Bitcoin’s price, which had dropped to just above $49,500, saw a rebound of more than 21%, climbing to $60,271.
With October being a historically strong month for Bitcoin, this boost in USDT supply may help propel the market higher. According to data from Arkham Intelligence, large transfers of USDT were observed from Tether’s treasury to major exchanges like Binance and Kraken, indicating that investors are positioning themselves for future gains.
However, it’s worth noting that past slowdowns in stablecoin inflows have been followed by market declines. For example, Bitcoin’s price briefly fell below $60,000 in August when institutional buying of USDT paused temporarily.
Despite the market sensitivity to stablecoin inflows, Bitcoin is showing resilience in October. According to CoinGlass, the average return for Bitcoin in October is 21%. In 2020, Bitcoin prices increased by more than 27% in October and continued rising through November.
For Bitcoin to confirm a breakout this month, it would need to close the week above $68,700. Additionally, Bitcoin exchange-traded funds (ETFs) have achieved a net flow of over $20 billion, a milestone that took gold ETFs nearly five years to reach. In contrast, Bitcoin ETFs managed to hit this figure in just 10 months, adding to the optimism for further gains before the month ends.
While Tether is best known for its role in developing USDT, the stablecoin tied to the U.S. dollar, the company has been expanding its operations. Tether now operates several distinct divisions, including an investment arm. Earlier this year, Paolo Ardoino, the CTO of Tether, revealed plans for Tether to invest over $1 billion within a 12-month period.
