A quant has explained using on-chain data that an interesting relationship may exist between the USDT exchange inflows and Bitcoin price.
USDT Derivative Exchange Inflows May Be Influencing Bitcoin Price
As pointed out by an analyst in a CryptoQuant post, many stablecoins entering into derivative exchanges have recently preceded a rise in the BTC price. The relevant indicator here is the “Tether derivative exchange inflow means,” which measures the mean amount of USDT currently being transferred into the wallets of all derivative exchanges.
This metric is different from the normal exchange inflow, since that one measures the total amount of the stablecoin flowing into exchanges rather than the average amount flowing into these platforms per transaction.
The benefit of this indicator over the normal exchange inflow is that a few whales can skew the latter metric as they generally transfer large amounts. At the same time, the former provides a better picture of the average investor’s behavior in the market.
When the inflow mean value is high, a large amount of USDT is flowing into exchanges with each transaction right now. On the other hand, low values imply the average holder isn’t depositing too many coins to these platforms.
Now, here is a chart that shows the trend in the 7-day moving average (MA) Tether exchange inflow means, as well as that in the Bitcoin price, over the last couple of weeks:
The possible relationship between the price of Bitcoin and USDT derivative exchange inflow mean | Source: CryptoQuant
As you can see in the above graph, the quant has marked the various points of interest in the USDT derivative exchange inflow mean and also how the Bitcoin price reacted to these instances.
It seems like whenever this metric has spiked to relatively high levels recently, the cryptocurrency’s price has first observed a small downtrend and followed up with some rise.
Generally, investors deposit stablecoins like Tether to exchanges when they want to swap them out for a volatile cryptocurrency like Bitcoin, thus providing buying pressure on the price of the coin they are shifting into.
However, as the inflow mean indicator used here is strictly for derivative exchanges, the likely purpose behind these deposits wasn’t to purchase other assets with them (as spot exchanges are usually used for this reason).
The quant thinks that these recent Tether exchange inflows were possibly being made to open long positions for Bitcoin, hence the bullish effect on the asset.
“Since this is not a rule, it cannot be accepted as 100% accurate, and we may not always see the price movement I mentioned,” the analyst cautions. “I have presented you with a statistic to be careful about when opening your trades.”
At the time of writing, Bitcoin is trading around $28,000, up 14% in the last week.
Looks like the value of the asset has declined in the last few hours | Source: BTCUSD on TradingView
Featured image from Maxim Hopman on Unsplash.com, charts from TradingView.com, CryptoQuant.com