Tether $4 Billion Market-cap Drawdown Could Be Silver Lining For Bitcoin Bulls

Biggest stablecoin Tether (USDT) has shed $4 billion in market cap in just two months, but history suggests that the downturn is nearly over.

Key points:

• Tether’s 60-day rolling market-cap contraction stays near $4 billion in one of its heaviest drawdowns.
• Analysis suggests that the worst of bear-market selling pressure could be over as a result.
• Comparison to 2022 bear-market highlights an ongoing RSI divergence.

USDT drawdown puts “acceleration” of Bitcoin selling in doubt

Onchain analytics platform CryptoQuant in a blog post last week flagged market cap “undergoing one of its sharpest contractions on record.”

“The deterioration has also accelerated at the margin: nearly $870 million of USDT supply disappeared over the latest 11-day period, showing that the contraction is not merely a legacy effect from earlier redemptions,” analysts wrote. 

CryptoQuant data puts the 30-day simple moving average (SMA) of 60-day USDT market-cap change at minus $4.88 billion as of Aug. 10. 

USDT 60-day market-cap change vs. BTC/USD. Source: CryptoQuant

The extent of the drawdown echoes crypto bear markets and rivals the largest ever seen. Its severity has implications for Bitcoin and the broader market recovery. Stablecoins provide a key source of liquidity, and when this evaporates, less capital or “dry powder” is available for deployment, showing a lack of interest among investors in stepping in at a given price.

“The caution is that correlation between USDT flows and BTC price doesn’t settle causality. Both likely respond to the same risk-off conditions, with redemptions accelerating alongside spot selling rather than strictly ahead of it,” CryptoQuant analysts said. They added:

“Periods of sustained USDT expansion have generally coincided with stronger Bitcoin price regimes, while prolonged contractions have accompanied weaker demand, deeper corrections, and deteriorating market conditions.”

Expanded USDT 60-day market-cap change vs. BTC/USD. Source: CryptoQuant

The steepest 60-day contraction period for USDT market cap completed on July 13, when it reached minus $5.72 billion.

Zooming out, CryptoQuant notes that the most pronounced contraction phases have historically occurred in the final phases of macro market downturns.

“Historically, the market’s deepest USDT contraction phases have also marked points where selling pressure was closer to exhaustion than to further acceleration,” it added.

Weekly RSI divergence echoes 2022 reversal

The findings add to the mounting body of evidence that suggests the current bear market is in its final stages.

Related: Binance Bitcoin volume ratio hits record as futures outweigh spot eight times over

As Cointelegraph continues to report, consensus among market participants increasingly favors a new Bitcoin macro bottom forming before the end of 2026. Both comparisons to previous bear markets and onchain indicators, however, see the downturn continuing in the short term.

Independent analyst William Clemente’s Aug. 8 BTC outlook echoed the prognosis while describing the Bitcoin network as “fundamentally healthy.”

“I think Bitcoin is ‘cheap’ although we could have a leg lower at some point throughout the year,” he summarized. 

His subsequent X post highlighted an unfolding bullish divergence between BTC/USD and the relative strength index (RSI) on weekly time frames — a classic leading indicator for a market reversal which accompanied the end of the 2022 bear market.

BTC/USD one-week chart with RSI divergences marked. Source: William Clemente on X.com