USDT Dominance: an indicator to forecast Bitcoin’s directionUSD Tether, or USDT, came into existence as a digital version of the U.S. dollar, and it succeeded. USDT is pegged to the U.S. dollar and is the top and most used stable coin in the crypto market. USDT is also being used for transferring money or other means of payment, although mostly in the crypto market. Many others tried to capture a piece of this huge market: USDC, BUSD, DAI, TUSD, and UST. We all know what happened to the last one, UST (Terra USD) depegged from the U.S. dollar and crashed.
Anyway, since USDT is the most used stable coin in the crypto market, its dominance can reveal important info about the crypto market, and mostly about the Bitcoin.
So, let's start with the plain USDT Dominance chart; it shows the percentage of the total crypto markets in the form of USD Tether. As can be seen, the USDT Dominance chart shows two ascending channels. The first is steeper than the second, and the reason for that is Tether's totalitarian nature, as back then there were no other worthy competitors, and most notably its quick acceptance by the crypto community—the traders.
Now, the second ascending channel is closer to the norm and, as such, can be used as a revealing indicator. It's easy, 1) when USDT Dominance goes down, that means most people are buying Tether, so there is a shortage of Tether in the market. 2) When USDT Dominance goes up, that means most people are selling Tether, so there is a surplus of Tether in the market. So what do these mean?
When people are buying more Tether than before, USDT Dominance decreases, and that means they are converting their fiat money, such as U.S. dollars, Euro, British Pound, Franc, etc., to Tether in order to buy crypto assets such as Bitcoin. Now, here is the important part: If more people are converting their fiat money into Tether to buy crypto coins, the demand for crypto assets will go up, and when demand goes up, so does the price.
When people are selling their crypto assets more than before, they are converting their crypto assets, such as Bitcoin, into Tether, so there is a surplus of Tether in the market, and as a result, the USDT Dominance increases. This happens when traders/people want to save profits or think the market could go into a downtrend/correction, so they sell their crypto assets and prefer to hold a stable coin like Tether.
Here, the USDT Dominance chart is compared with the Bitcoin price chart. As can be seen, when USDT Dominance went down, the Bitcoin price went up, and vice versa. So, when the Bitcoin price was decreasing, more people were selling Bitcoin and converting their crypto assets into Tether; thus, more Tether became available in the market, and as a result, the USDT Dominance went up.
The USDT Dominance chart can be used as a simple indicator to forecast Bitcoin's possible future movements.
