Caution Is Advised In Crypto Market Right Now, Says Analyst

Lately, we’ve seen crypto investors focus their attention on challenges like ETF inflows, spot price volatility, and macroeconomic policies. However, one crucial signal that often gets ignored is the dominance of Tether (USDT). What's special about this? While many fixate on short-term price movements, I prefer to focus on the movement of money itself.

Where is the money and why is it important?

USDT dominance refers to the percentage of the total crypto market that is represented by Tether. When this percentage increases, it often indicates an increasing number of traders selling their cryptocurrencies and moving to stablecoins. This is an indication that they are temporarily exiting the market. A crucial threshold here is 3,7%. If USDT.D remains above this value, especially if it is between 3,7% and 4,5%, I consider it a sign to be extra cautious. Currently, the dominance is even hovering above 4,5%.

While investing through ETFs can drive inflows, it often does so outside of the normal crypto markets, potentially creating a distorted picture of market strength while keeping real money parked in stablecoins.

What does the dominance of USDT combined with USDC tell us?

A second important metric to watch is the combined dominance of both USDT and USDC. If this combined dominance does not fall below 5%, I do not expect significant increases for major powers such as Bitcoin and Ethereum. Historically, we see a remarkable correlation: when the dominance of stablecoins decreases, the prices of other cryptocurrencies increase. If this indicator remains below 5%, this could indicate renewed market activity, with investors daring to take more risks again and possibly signaling a new 'altseason'.

For those looking for the right moments to bolster their portfolio, I would advise focusing less on big news and more on the movements and behavior of money in stablecoins.

Frequently Asked Questions

What does USDT dominance mean?

USDT dominance refers to Tether’s share of the total market cap of all cryptocurrencies combined. An increase often indicates an increase in risk aversion among traders.

Why is the combined dominance of USDT and USDC relevant?

Together, these two indicators provide a broader picture of how much money is in stablecoins, providing useful insights into overall market sentiment and the willingness to invest in more volatile assets.

What would a drop below 5% dominance mean?

A drop below this level would suggest that capital is flowing back into riskier cryptocurrencies, which could be a sign that investors are becoming more comfortable taking greater risks, potentially leading to higher market prices.