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Bitcoin Macro Trend Unaffected by Chinese Investors’ $50B Tether Exodus

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New data from Chainalysis shows Chinese investors reportedly used Tether (USDT) to move nearly $50 billion overseas. This has led some crypto investors to question whether or not Bitcoin price could be impacted by capital flight from China.

Chainalysis researchers said:

“Over the last twelve months, with China’s economy suffering due to trade wars and devaluation of the yuan at different points, we’ve seen over $50 billion worth of cryptocurrency move from China-based addresses to overseas addresses.”

A large portion of the funds were moved through Tether and as this occurred the dominant stablecoin saw its market cap rise to a new all-time high at $12 billion on paper.

Is the situation bullish or bearish?

China, along with several other Asian countries, have strict capital controls that make it difficult for investors to move large sums of money abroad.

If Chinese investors moved tens of billions of dollars in Bitcoin (BTC) or Tether solely to move capital out of China, there is a chance that a large part of it is sold and turned into cash.

Chainalysis emphasized that not all of the $50 billion is capital flight, but it can be considered as the absolute ceiling. The researchers said:

“Obviously, not all of this is capital flight, but we can think of $50 billion as the absolute ceiling for capital flight via cryptocurrency from East Asia to other regions.”

The researchers evaluated wallets based in China and their transactions to addresses in foreign countries. They found that $18 billion in Tether was moved from East Asia to other regions.

But the company noted that it is unlikely that all of it is capital flight. As such, it is difficult to know what percentage of the funds were moved as a means to transfer capital outside of China. They explained:

“In total, over $18 billion worth of Tether has moved from East Asia addresses to those based in other regions over the last 12 months. Again, it’s highly unlikely that all of this is capital flight.”

If the outflow was purely capital flight being routed into BTC, then this would add selling pressure to Bitcoin. In such a situation, there should be some downturn in BTC price as these investors would be closing their newly opened Bitcoin positions in pursuit of USD or other fiat currencies.

BTC/USD weekly chart. Source: TradingView.com

There is a catch

One variable that complicates the China USDT exodus theory is that in 2020 exchanges have seen their BTC reserves drop to record lows and more investors holding their Bitcoin in cold storage as they expect higher prices in the future.

It is entirely possible that, if the funds were moved for the purpose of capital flight, they could have been sold anytime in the past year.

Hence whether it could apply selling pressure onto the Bitcoin market in the near-term is practically impossible to conclude.

Based on the broad timeframe of the movement of the funds and Tether accounting for a large part of the funds, it is not likely to have a big impact on Bitcoin in the short-term.



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This key Bitcoin price indicator shows pro traders buying each dip

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Bitcoin (BTC) might have failed to sustain the $42,000 support, and for many, this is a slightly bearish sign. Interestingly, the downward move occurred shortly after Saudi Aramco, KSA’s largest oil exporter, denied claiming to start mining Bitcoin.

Top traders at exchanges seized the opportunity to add leverage-long positions, a clear bullishness indicator. Furthermore, margin traders have been increasing their stablecoin borrowing, indicating that whales and professional traders are expecting more upside from cryptocurrencies.

The 24% weekly rally that took Bitcoin from $34,000 to its highest level since May 20 was fueled by a 30% surge in the number of “active entities,” according to Glassnode. This indicator could have triggered these savvy traders to increase their positions despite the lackluster price performance.

Pro traders are using leverage to buy below $40,000

OKEx top traders BTC long-to-short ratio (above) and BTC price at Bistamp in USD (below). Source: OKEx & TradingView

Notice how OKEx top trades have increased their Bitcoin longs from 0.68 on July 31 to 1.16 two days later. A 0.68 ratio indicates those whales and professional traders’ long positions were 32% smaller than their respective short bets, positions that benefited from a price decrease.

On the other hand, the 1.16 long-to-short favored bullish positions by 16% and reflected confidence even as the Bitcoin price dropped below $40,000 on August 2.

However, there is no way to know if those traders closed short positions or effectively added longs. To better understand this movement, one needs to analyze margin lending data.

Lending markets provide additional insight

Margin trading allows investors to borrow cryptocurrency to leverage their trading position, therefore increasing the returns. For example, one can buy cryptocurrencies by borrowing Tether (USDT), thus increasing the exposure. On the other hand, borrowing Bitcoin can only be used to short it, betting on the price decrease.

Unlike futures contracts, the balance between margin longs and shorts isn’t always matched.

OKEx USDT/BTC margin lending ratio. Source: OKEx

The above chart shows that traders have been borrowing more Tether recently, as the ratio increased from 2.00 on July 30 to 2.50. The data leans bullish in absolute terms because the indicator favors stablecoin borrowing by 2.5 times. It also shows resilience in the face of the recent BTC price drop.

Derivatives data leaves no doubt that OKEx top traders added long positions even as Bitcoin corrected 9% from the $42,600 top in the early hours of August 1.

Unlike retail traders, these heavyweights can withstand some troubled waters, although neither the long-to-short indicator nor the margin lending show signs of excessive leverage.

At the moment, longs appear confident in the face of a natural correction that occurred after an 11-day rally.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.