Apex stablecoin issuer Tether shrinks for the second month in a row as crypto liquidity continues to tighten. A contraction in the supply of stablecoins often signals capital leaving the exchanges. And combined with weak demand for ETFs, momentum for the major tokens appears fragile.
Tether shrinks to $183.6 billion as stablecoin outflow signals market caution
Tether’s market capitalization fell 0.8% to $183.61 billion in February, according to market data. In January there was already a decline of 1% from a record $186.84 billion. Back-to-back monthly declines have not occurred since the collapse of TerraForm Labs in 2022, boosting confidence in stable coins and billions in market value erased.
Rachael Lucas, a crypto analyst at BTC Markets, said stablecoins serve as fuel digital asset trading. When supply shrinks, trading activity and risk appetite tend to weaken. The continued decline in the USDT indicates that capital is moving away rather than preparing for new allocations.
For the uninitiated, stablecoins are digital tokens tied to fiat currency. Traders use them to park money without leaving crypto exchanges. Over time, they have become important settlement assets in some regions for trade, cross-border transfers and even everyday payments.
The current stablecoin data has several implications:
- The USDT the market capitalization has fallen for two months in a row
- A similar contraction last occurred during the 2022 bear market stress.
- Capital outflows often follow a shrinking supply of stablecoins.
- Demand for Spot Bitcoin ETFs in the US remains subdued.
- Liquidity conditions appear weaker on the major exchanges.
Bitcoin rallies lack depth as ETF demand and stablecoin expansion weaken
Bitcoin has had a tough time in recent months. In fact, the OG coin has made several failed attempts to stay above the $70,000 mark. Instead, the selling pressure returned and pushed BTC back below $67,000. As a result, both institutional and retail investors are still cautious.
Image source: Trading view
Soft flows into US-listed spot Bitcoin ETFs add to headwind. The tepid inflow indicates that only limited new capital is entering the market. Without stronger demand from both ETFs and stablecoins, rallies may lack depth.
USDC, issued by Circlehas shown more stability than Tether. The market capitalization has recovered to almost $75 billion, after a January dip of almost $70 billion. However, year-to-date growth remains flat.
In the past, growth in stablecoin supply has often preceded major crypto rallies. When more stablecoins enter the market, liquidity increases and prices typically rise. On the other hand, when supply contracts for an extended period of time, markets tend to move sideways or down.
#Tether #Decline #raises #concerns #liquidity #crypto #market