Tether the world’s largest stablecoin by market capitalization, continues to shrink and looks set for a second straight monthly decline, signaling challenging conditions for a sustainable broader market recovery.
Tether’s market cap has fallen 0.8% to $183.61 billion this month, extending January’s 1% slide from a record $186.84 billion, according to data source CoinDesk. This has not happened since the 2022 collapse of TerraForm Labs, which wiped out billions in investor wealth and shook investor confidence in stablecoins.
“Stablecoins are the fuel that drives the crypto markets. When the fuel drains, everything slows down, and that’s exactly what we’re seeing unfold,” Rachael Lucas, crypto analyst at BTC Markets, said in a post on LinkedIn.
Stablecoins are digital tokens whose value is tied to an external reference such as the US dollar or other fiat currencies. Often touted as tokenized versions of fiat currencies, they help users bypass the risks of price volatility associated with other tokens, such as bitcoin.
This is why over the years they have evolved to finance currencies for crypto trading and a way to move capital across borders, including day-to-day payments in some regions.
The ongoing decline in the bond indicates capital outflow from the crypto market. This, combined with weak demand for US-listed spot ETFs, cast doubt on the durability of potential recovery rallies in bitcoin and the broader crypto market.
Bitcoin the leading cryptocurrency by market cap, has failed to build momentum since its downtrend stalled near $60,000 on February 6. Prices briefly jumped above $70,000 days later, but have since retreated to trade around $65,000, CoinDesk data shows.
Note that the growth of other prominent stablecoins, such as the US-regulated USDCoin (USDC), has also stalled, although it has been more resilient than tether.
While USDC’s market capitalization has risen to nearly $75 billion from the January drop to $70 billion, it remains flat year-to-date.
