How is Tether supporting the demand for Bitcoin?

How is Tether supporting the demand for Bitcoin? - Bitcoin first capital increase in cryptocurrency 1024x551 buy Bitcoins now it takes around $ 12.000, a threshold that has been crossed twice in the past two weeks. Will it be the third time the lucky one for the largest cryptocurrency in the world?

A "Bull Trap"

Since it crossed $ 12.000 on August 2, for the first time since June 2019, Bitcoin has been a "bull trap". Such dynamics occur due to several sell orders placed at, or close to, a particular price, and once the trade price reaches this threshold, a large number of sell orders are triggered (typically at lower prices, to ensure quick trades), pushing the price down.

Fortunately for the holders, each of Bitcoin's previous attempts have been followed by price improvement and recovery. One reason for this is the nature of supply and demand in the Bitcoin ecosystem leading to higher prices, a mechanism detailed in a recent report by Intel's Chainalysis Market.

Despite rising prices, there is strong demand for Bitcoin currently, something that has only happened three times in the history of the cryptocurrency, even during the 2017-18 bull run and in June 2019.

Intel Chainalysis Market: Report

The first clues to the source of this demand are crypto exchanges thanks to which the stablecoin Tether "provides liquidity". On August 10, USDT worth $ 806 million entered several exchanges, covering 9% of the total supply.

The report noted that these one-day dynamics "are based on an upward trend in inflows [into exchanges] since April." A single USDT has a x19 return on the liquidity of a trade and hence, it's no wonder that more USDT in the markets means more trades.

 In addition to the mechanisms that move this stablecoin, crypto-fiat exchanges are the bastions of the "new demand for Bitcoin" and not crypto-crypto exchanges. Author Philip Gradwell, Chief Economist of Chainalysis, motivated this claim by pointing out that Bitcoin "is abandoning crypto-crypto exchanges and moving towards crypto-fiat exchanges".

This latter type of market outflow, in 2019, covered the huge sum of $ 1,66 billion. Gradwell mentioned two key reasons for this outflow (or positive net flow for crypto-fiat). First, given the rising price, traders intend to cash in fiat currencies, indicating the supply of Bitcoin.

Second, buyers looking at this rising price want to enter cryptocurrencies, via fiat-on-ramp, increasing the demand for Bitcoin. Another important point to note is that of the aforementioned $ 1,66 billion, $ 1,12 billion represented the net flow from mid-March, when the price fell below $ 4.000 and started to rise.

The report added: "As the price rose above $ 10.000, net flows into crypto-fiat exchanges increased, with 154 bitcoins moving net since July 27." If this demand had been absent from the market, the selling pressure that had built up would have "reduced the price".