A closer look at Bitcoin’s price dynamics raises critical questions about the role of Tether (USDT) in fueling the market.
This chart illustrates a cycle where:
USDT is issued, allegedly backed by reserves.
Overcollateralized loans are taken against BTC.
High-leverage bid positions on BTC perpetuals drive up prices.
Rising prices attract further liquidity, reinforcing the cycle.
Profits are ultimately cashed out in USD via regulated exchanges.
While this mechanism has contributed to Bitcoin’s liquidity and price appreciation, it also raises concerns about market sustainability and systemic risk. If confidence in USDT’s backing wavers, could it trigger a liquidity crunch and a significant price correction?
As institutional adoption of digital assets increases, understanding the structural dynamics behind liquidity and price formation is crucial for risk assessment.