The crypto market is seeing one of its rarest trends lately, and it doesn’t look good for the valuation of bitcoin and other tokens.
This trend is the decline in the market value of the top two dollar-pegged stablecoins, Tether and USD Coin (USDC). Their total market capitalization has fallen to $257.9 billion, the lowest since Nov. 20, after peaking near $265 billion in mid-December, according to data from CoinDesk. The decline has been particularly steep in the last ten days.
USDC accounts for most of the decline, with its market capitalization down over $4 billion in ten days and down $6 billion to $71.65 billion since mid-December. Tether’s value has fallen by just over $1 billion to $186.25 billion over the same period.
The downward trend shows traders pulling cash from the crypto market, a trend that coincides with institutions pulling billions out of US-listed spot bitcoin exchange-traded funds.
Stablecoins like USDT and USDC, pegged to the US dollar, act as an easy door for regular money to flow into digital assets, fund crypto purchases and DeFi return plays, but now that is turning around. Think of these as casino chips. You exchange regular cash (fiat) for chips before you hit the gaming floor, play your games, then cash out your remaining chips back into dollars when you’re done and go home.
“Money leaves crypto instead of waiting on the sidelines: Usually, when traders sell Bitcoin or altcoins, that money stays in crypto as stablecoins. A falling stablecoin market cap shows that many investors are cashing out to fiat instead of preparing to buy dips,” blockchain research firm Santiment said in an explanatory post on X.
The firm added that the dwindling stablecoin supply raises questions about the sustainability of market gains, especially in alternative cryptocurrencies.
“Stablecoins are the main source of liquidity used to buy crypto. When their supply decreases, there is less capital available to quickly push prices back up, making rebounds weaker or slower,” it noted.
In short, a decreasing supply of stablecoin can hinder the price increase of bitcoin and other cryptocurrencies. Bitcoin, the leading cryptocurrency by market capitalization, has risen to nearly $89,000 from a weekend low of $86,000.
The drop in stablecoin supply, 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
“Anecdotally, investors and traders seem to be pricing in the US crypto mojo. The CLARITY Act remains stuck in the Senate while Republicans prioritize purchasing power-focused legislation ahead of the midterms, reducing short-term regulatory momentum for crypto,” said Aurelie Barthere, analyst at N emailans research.
She added that the passage of the bill would be a meaningful upward catalyst for the market.
