Attached the world’s largest stablecoin by market value, continues to decline and appears poised for a second consecutive monthly contraction, signaling challenging conditions for a sustainable and broader market recovery.
Tether’s market capitalization fell 0.8% to $183.61 billion this month, extending January’s 1% decline from a record $186.84 billion, according to data source CoinDesk. This has not happened since the collapse of TerraForm Labs in 2022, which wiped out billions in investor wealth and shook investor confidence in stablecoins.
“Stablecoins are the fuel that powers crypto markets. When the fuel runs out, everything slows down, and that’s exactly what we’re seeing unfold,” said Rachael Lucas, crypto analyst at BTC Markets, in a post on LinkedIn.
Stablecoins are digital tokens whose value is linked to an external reference, such as the US dollar or other fiat currencies. They are often presented as tokenized versions of fiat currencies and help users circumvent the price volatility risks associated with other tokens, such as bitcoin.
This is why, over the years, they have become funding currencies for cryptocurrency trading and a way of moving capital across borders, including daily payments in some regions.
Tether’s continued contraction indicates capital outflows from the crypto market. This, coupled with lukewarm demand for US-listed spot ETFs, casts doubt on the sustainability of a potential recovery in Bitcoin and the broader crypto market.
Bitcoin the leading cryptocurrency by market value, has failed to build momentum since its downtrend halted near $60,000 on February 6. Prices briefly rebounded above $70,000 a few days later, but have since retreated to trade around $65,000, according to CoinDesk data.
Note that the growth of other top stablecoins, such as the US-regulated USDCoin (USDC), has also stalled, although it has been more resilient than Tether.
Even though the USDC market cap has recovered to almost $75 billion after falling to $70 billion in January, it remains stable year to date.
