Tether, the largest stablecoin issuer globally, is displaying initial signs of slowing down in momentum as its market capitalization dropped for the second consecutive month, a rare trend that indicates a slowdown in the stablecoin market as a whole.
As per the latest market trends, Tether (USDT) recorded a drop of 0.8 percent in its market value in February to $183.61 billion, marking the first time the token has shown a two-month decline since the Terraform Labs ecosystem crisis in 2022.
The Terraform Labs crisis was sparked by the collapse of the algorithmic stablecoin TerraUSD. The incident had resulted in significant capital outflows from stablecoins.
Is the fall alarming?
Although the current fall is much smaller, it is still significant because the supply of Tether has been steadily increasing over the past years of 2023 and 2024 as more people engage in trading crypto.
The current fall indicates that the trend is shifting, and investors are either leaving the crypto markets or choosing other alternatives.
Stablecoins such as USDT are often used as tools to increase liquidity in trading platforms. The supply of these stablecoins may indicate changes in market demand.
The current slight shrinkage in supply may indicate that traders are withdrawing funds from the crypto market or allocating them to other assets, such as yield-bearing instruments or traditional financial assets.
Experts also attribute the decrease to a decrease in speculative trades following the strong market rallies experienced towards the end of last year, which reduces the demand for trading liquidity in stablecoins.
Peer performance
Meanwhile, rival stablecoin USD Coin (USDC) has staged a partial recovery. Its market capitalization has climbed back to roughly $75 billion after hitting a low point in January.
However, the token remains largely flat on a year-to-date basis, highlighting what market observers describe as stagnation among major dollar-pegged digital assets.
However, the slower growth of USDC stands in contrast to previous phases where it quickly expanded its market share based on perceptions of better regulatory support and transparency.
The current stagnation, therefore, shows that neither of the leading stablecoins is seeing new net inflows of funds despite improvements in sentiment levels in certain areas of the broader crypto space.
Taken together, therefore, it seems that the stablecoin market may now be entering a phase of consolidation following several years of growth.
Issuance, in other words, now seems to be more directly tied to actual trading volumes and institutional usage patterns rather than new issuance to support trading speculation.
For crypto market observers and investors, the stablecoin supply level is an important indicator of crypto market health.