Bitcoin Updates: Tether's Unstable Backing and Bitcoin's Rally Intensify Liquidity Shortage

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Bitcoin Updates: Tether's Unstable Backing and Bitcoin's Rally Intensify Liquidity Shortage

Bitget-RWA2025/11/27 05:14

By:Bitget-RWA

- Bitcoin's price surge triggered Tether (USDT) outflows, raising liquidity risks as reserves face S&P downgrade. - NYDIG reports $3.55B ETF outflows in November, linked to corporate trades and algorithmic stablecoin losses. - S&P cites 5.6% Bitcoin exposure in USDT reserves, exceeding overcollateralization buffers, risking undercollateralization. - Analysts warn of self-reinforcing cycles as Bitcoin rallies coincide with Tether redemptions, straining liquidity. - Tether's 24% high-risk assets in reserves

The latest surge in Bitcoin prices has sparked significant outflows of

Tether

(USDT), fueling worries about the market’s stability as liquidity tightens.

NYDIG’s research indicates

, spot

Bitcoin

ETFs experienced $3.55 billion in redemptions this November—the largest monthly outflows since their inception—while the supply of stablecoins has dropped for the first time in several months. Greg Cipolaro, NYDIG’s Global Head of Research, links this capital exodus to a reversal of major demand factors, such as corporate treasury activities and algorithmic stablecoins like

USDE

, which has seen its supply nearly halved since October’s liquidation event.

The vulnerability of Tether’s reserves has worsened after S&P Global Ratings downgraded USDT’s stability score to “weak,” its lowest rating. The downgrade was attributed to Tether’s rising allocation to riskier assets, with Bitcoin now making up 5.6% of USDT’s reserves—surpassing the 3.9% overcollateralization margin.

S&P cautioned that a steep decline in Bitcoin prices

, together with losses in other high-risk investments, might leave

USDT

undercollateralized and undermine investor trust. Tether’s holdings, which include gold, corporate debt, and secured loans, now consist of 24% higher-risk assets, up from 17% a year ago, heightening liquidity concerns

as per S&P’s findings

Bitcoin Updates: Tether's Unstable Backing and Bitcoin's Rally Intensify Liquidity Shortage image 0

Market experts caution that the dynamic between Bitcoin’s rallies and stablecoin withdrawals could set off a feedback loop.

Glassnode’s analysis highlights

that Bitcoin price increases often align with Tether redemptions, as investors shift funds into fiat or alternative assets, putting further pressure on liquidity. S&P’s broader scrutiny of Bitcoin-related vulnerabilities—reflected in its speculative ratings for companies like Strategy—points to a growing systemic risk as crypto and traditional finance become more interconnected

as reported by The Block

Despite USDT maintaining its lead in the stablecoin sector with $184.4 billion in circulation, the agency suggested that greater transparency and a reduction in risky asset exposure could help restore its rating. Nevertheless, the current trends mark a pivotal moment for the crypto industry, where tightening liquidity and increased regulatory oversight may challenge the market’s durability in the near future.

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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