The crypto market is experiencing one of its rarest trends in recent times, and it doesn’t look good for bitcoin valuations. and other tokens.
This trend is the contraction in the market capitalization of the two main dollar-indexed stablecoins, Attached and USD coin (USDC). Their combined market value fell to $257.9 billion, the lowest since November 20, after peaking at nearly $265 billion in mid-December, according to CoinDesk data. The decline has been particularly strong over the past ten days.
USDC is responsible for most of this decline, with its market capitalization falling by more than $4 billion in ten days and by $6 billion to $71.65 billion since mid-December. Tether’s value fell by just over $1 billion to $186.25 billion during the same period.
The downward trend shows traders withdrawing cash from the crypto market, a trend that coincides with institutions withdrawing billions from exchange-traded funds to spot U.S.-listed bitcoin.
Stablecoins like USDT and USDC, pegged to the US dollar, act as an easy gateway for regular money to flow into digital assets, funding crypto purchases and DeFi yield plays, but now the situation is reversing. Think of them like casino chips. You exchange regular money (fiat) for tokens before entering the game room, play your games, then cash out your remaining tokens into dollars when you’re done and go home.
“Money leaves crypto instead of waiting on the sidelines: Normally, when traders sell Bitcoin or altcoins, that money stays in crypto as stablecoins. A falling market cap shows that many investors are cashing out in fiat currency instead of preparing to buy dips,” blockchain analytics firm Santiment said in an explanatory article on X.
The company added that the dwindling supply of stablecoins raises questions about the sustainability of market gains, particularly in alternative cryptocurrencies.
“Stablecoins are the primary source of liquidity used to purchase cryptocurrencies. When their supply decreases, there is less capital available to drive prices up quickly, making rebounds weaker or slower,” he notes.
In short, the dwindling supply of stablecoins could hamper the price rebound of bitcoin and other cryptocurrencies. Bitcoin, the leading cryptocurrency by market value, rebounded to nearly $89,000 from the weekend’s low of $86,000.
The decline in the supply of stablecoins, particularly USDC, issued by US-regulated Circle Internet Financial, could be a reflection of investor frustration over delays in the Clarity Act – a bill to regulate these dollar-pegged tokens in the US.
“From a narrative perspective, investors and traders appear to be ignoring America’s crypto mojo. The CLARITY Act remains stalled in the Senate, while Republicans prioritize spending power-focused legislation before the midterms, reducing near-term regulatory momentum for crypto,” Aurélie Barthere, senior research analyst at Nansen, said in an email.
She added that the passage of the bill would be a significant bullish catalyst for the market.
