A few days ago, an important news was published regarding the crypto markets, and in particular an apparent correlation between Tether (USDT) and Bitcoin.
The news was reported by CryptoQuant on January 20th, with a graph showing on one side the decrease in the price of BTC, and on the other side the increase in USDT reserves on Bitfinex.
It should be noted that Bitfinex is effectively the primary market for USDT, as Tether issues and redeems tokens directly from that exchange, which belongs to the same iFinex group.
Crypto news: the increase in Tether deposits and its correlation with the price of Bitcoin
CryptoQuant reports that, with a remarkable twist in the crypto market, Bitfinex “whales” have decided to close their leveraged positions over the past week, thus triggering a significant increase in the USDT reserve on the platform.
They define this as a “strategic action” that has attracted attention by revealing interesting nuances about the behavior of the crypto market.
It all starts with the observation of a 21% reduction in Open Interest on Bitfinex. This parameter represents the total value of open derivative contracts on the exchange, so its reduction indicates the closing of many open positions.
At the same time, there has been a very significant increase in USDT reserves on the exchange, going from $5.3 million to a whopping $190 million.
According to CryptoQuant analysts, this dynamic would clearly suggest that major traders are closing or reducing their positions in response to recent price fluctuations in the crypto markets, with particular reference to the decline in the price of Bitcoin.
Furthermore, they point out that the Open Interest on Bitfinex has a significant correlation with the price of BTC, and that this correlation is strong despite Bitfinex’s Open Interest not being as significant as that of other major exchanges, like Binance.
On the contrary, they go so far as to affirm that this peculiarity places Bitfinex in “a unique position in the cryptocurrency ecosystem”, and that this offers interesting food for thought on the potential future movements of the price of Bitcoin itself.
The apparent correlation between Tether reserves and the price of Bitcoin (BTC)
In reality, analyzing the chart published by CryptoQuant, the correlation appears to be a bit less evident.
The chart starts from mid-October, when the price of BTC was below $30,000, and shows that during the November recovery, the Open Interest was decreasing.
Subsequently, the Open Interest started to rise again, while the price of Bitcoin effectively remained sideways.
At the beginning of January, while the Open Interest continued to rise, the price of BTC slightly increased, only to start falling when the Open Interest began to decline.
Therefore, these are three different behaviors in about three months.
Instead, if we take the USDT reserves on Bitfinex as a reference, we discover that while the price of BTC was rising in November, these reserves remained essentially unchanged.
They started to rise only with the movement of Bitcoin above $38,000 at the beginning of December, and then started to fall again when the price of BTC began to move sideways.
They finally rose a lot in the last week, at the same time as the decrease in Open Interest.
Even in this case, there are three different behaviors in three months.
Bitfinex’s reserves
Taking Bitfinex’s Bitcoin reserves as a reference, a different dynamic is discovered.
In fact, these have been steadily increasing since the end of October.
On the contrary, they have been increasing since 2021.
Instead, USDT has shown a much more stable trend over the years, although with significant fluctuations in the short term.
So there doesn’t seem to be a correlation between the reserves in USDT and those in BTC on Bitfinex. However, what is surprising is the almost continuous increase in Bitcoin reserves.
In fact, if we consider the overall trend across all exchanges, we discover that starting from May 2023, BTC reserves on exchanges had decreased until early December.
Probably, in fact, this descent is the main cause of the increase in the price of Bitcoin in the last months of 2023, since the fewer BTC there are on exchanges, the less selling pressure there is.
Since mid-December, this decline has stopped, and that is probably why the rise in the price of Bitcoin has ended.
On Bitfinex, however, the dynamics are different, but compared to the overall 2.1 million BTC present on exchanges, the 400,000 on Bitfinex are not that many.
Therefore, the curious dynamics of the increase in BTC on Bitfinex, in the face of a general decline in Bitcoin reserves on exchanges, did not have an impact on the price due to the fact that it was a dynamic of much smaller proportions than the general dynamics. Instead, the latter has positively influenced the price of BTC.
