Bitcoin and USDT astonishing patterns! Glassnode: strong negative correlation profit signals

Blockchain analytics provider Glassnode reports that there has been a “strong negative correlation” between Bitcoin and USDT activity over the past two years. The analysis shows that the net outflow of USDT from exchanges occurs simultaneously with the rise in BTC prices. During periods of heightened market sentiment, USDT typically flows out at a rate of -100 million to -200 million USD per day.

Glassnode reveals the negative correlation pattern between Bitcoin and USDT

(Source: Glassnode)

In a post on X published on November 26, Glassnode shared comparative data of Bitcoin and USDT starting from December 2023. The analysis shows that the net outflow of USDT from the exchange coincides with the pump in BTC prices, a pattern that has repeatedly occurred over the past two years, forming a predictable market behavior.

Glassnode stated: “During periods of high market sentiment, USDT typically experiences an outflow of -100 million to -200 million USD daily as investors lock in profits. In October, when Bitcoin reached a peak price of 126,000 USD, the net outflow exceeded 220 million USD (30-day moving average); this is a clear profit-taking signal, and currently, as funds are shifting back to USDT, the momentum is weakening.”

The logic behind this negative correlation is relatively clear. When the price of Bitcoin rises, investors choose to convert part of their holdings into USDT to lock in profits, resulting in USDT flowing out of exchanges to personal wallets or other platforms. Conversely, when the price of Bitcoin falls or consolidates, investors deposit USDT back into the exchanges in preparation for buying, leading to an increase in USDT inflows. This pattern is essentially a collective manifestation of market participants' risk management strategies.

The use of the 30-day moving average is crucial in this analysis as it smooths out short-term fluctuations and reveals longer-term trends. The peak of net outflows of 220 million USD occurred near the historical high of Bitcoin prices, indicating that a large number of investors chose to take profits at this price level. This data point provides traders with a clear indicator of market sentiment: when USDT net outflows reach extreme levels, it often signals that Bitcoin prices are about to face downward pressure.

The Key Correlation Between Bitcoin Prices and USDT Outflows

Bull Market Phase: Bitcoin price pumps, USDT daily outflow of -100 million to -200 million USD, investors locking in profits

Peak Signal: When Bitcoin reached 126,000 USD, the 30-day moving average net outflow of USDT exceeded 220 million USD, marking a peak of profit-taking.

Pullback Preparation: USDT is flowing back into the exchange, indicating that investors are ready to buy on dips, and the Bitcoin price may stabilize.

Whale Alert Analysis: The Cyclical Pattern of USDT Issuance and Destruction

An analysis by Whale Alert in April revealed a significant correlation between Bitcoin and USDT, where the issuer of the USDT stablecoin typically issues more during Bitcoin bull markets and burns during market pullbacks. This pattern provides another dimension of validation for Glassnode's finding of negative correlation.

The increase in the issuance of USDT usually reflects the growing demand for stablecoins in the market. During a Bitcoin bull market, a large influx of new capital flows into the crypto market, and investors need stablecoins as a medium of exchange and temporary hedging tool. Tether, as the issuer of USDT, issues new coins based on market demand to meet liquidity requirements. This increase in issuance is not created out of thin air but is based on equivalent fiat currency reserves or equivalent asset collateral.

On the contrary, during the price correction of Bitcoin, the demand for stablecoins decreases, and some investors choose to exchange USDT back to fiat currency to exit the market. At this time, Tether will destroy the corresponding amount of USDT to maintain the balance between supply and demand. This cyclical pattern of issuance and destruction is, in fact, a thermometer for the flow of funds in the crypto market, reflecting the changes in the risk preferences of market participants.

These two digital assets are currently the first and third largest tokens by market capitalization, with Bitcoin's market cap at approximately 1.8 trillion USD and USDT's market cap at around 184 billion USD. This difference in market cap size also partially explains why USDT's liquidity is so sensitive to Bitcoin's price. As the largest stablecoin and a major trading counterpart currency, the changes in supply and demand for USDT directly impact the liquidity situation in the crypto market.

From the perspective of trading volume, USDT is one of the largest cryptocurrencies by global trading volume, with daily trading volumes often exceeding that of Bitcoin itself. This high liquidity makes USDT an ideal indicator for observing market sentiment. When a large amount of USDT flows out of the exchange, it signifies that investors are moving trading profits off-exchange, which often indicates that the market may soon enter a correction phase.

The US regulatory environment promotes the adoption of stablecoins and Bitcoin

Under a favorable regulatory environment in the United States, the widespread adoption of stablecoins and Bitcoin continues to advance. In July of this year, the U.S. government passed the “GENIUS Act,” which aims to establish a regulatory framework for payment stablecoins. This marks the first time the U.S. has established comprehensive federal regulatory standards for stablecoins, signifying the transition of crypto assets from the gray area into an era of compliance.

Tether CEO Paolo Ardoino stated that USDT will comply with the legislation, but he also announced in September that the platform will launch a new stablecoin, USAT, pegged to the dollar, in accordance with the provisions of the “GENIUS Act.” This decision shows that Tether is adjusting its product line to adapt to the new regulatory environment while also providing options for users with different compliance needs.

The coexistence strategy of USDT and USAT is worth noting. USDT, as a global stablecoin, operates in many jurisdictions, while USAT is specifically designed to meet the compliance requirements of the U.S. market. This dual-track system could become the standard model for the stablecoin industry in the future, with varying regulatory requirements across regions giving rise to different versions of stablecoin products.

The U.S. government and some states are also taking measures to reserve Bitcoin as part of their strategic reserves. U.S. President Trump signed an executive order in March directing the establishment of digital asset reserves. This is the first time the U.S. government has officially included cryptocurrency in the consideration of national strategic assets. Although the implementation details are still under discussion, this initiative itself has provided significant support for the long-term value of Bitcoin.

However, reports indicate that the government has not yet implemented the plan, which mainly relies on the cryptocurrency seized from reserves. The Bitcoin currently held by the U.S. government primarily comes from assets confiscated by law enforcement agencies in the fight against criminal activities, rather than being actively purchased in the market. This passive reserve strategy differs from the active strategic reserves expected by the market, but the shift in policy direction has already provided strong narrative support for Bitcoin.

Trading Strategy Insights: How to Utilize Negative Correlation Indicators

The negative correlation between Bitcoin and USDT revealed by Glassnode provides traders with a practical market sentiment indicator. When the net outflow of USDT from exchanges accelerates to over -200 million USD per day, it often indicates that the price of Bitcoin may be approaching a short-term peak, and investors should consider taking some profits or setting stop-loss orders.

On the contrary, when USDT flows back into the exchange in large amounts, it indicates that investors are preparing to buy on dips, which could be a signal for Bitcoin price bottoming out. Traders can monitor the 30-day moving average change of USDT inflows to determine whether market sentiment is shifting from fear to greed. The value of this leading indicator lies in the fact that it reflects actual capital flows rather than just price changes.

However, this indicator is not infallible. Under extreme market conditions, such as liquidity crises or regulatory shocks, the liquidity patterns of USDT may behave abnormally. Furthermore, as the market shares of other stablecoins (such as USDC and DAI) grow, relying solely on USDT data may not fully reflect the market landscape. Traders should combine this indicator with other technical analysis tools and fundamental factors to form a more comprehensive trading decision framework.