Tether’s flagship stablecoin is facing its sharpest monthly contraction since the collapse of FTX, signaling a notable liquidity shift across the crypto market.
Key Takeaways
- USDT supply is down about 1.5 billion dollars in February, its biggest monthly drop since 2022.
- The decline follows MiCA-driven restrictions in Europe and major exchange delistings.
- USDC is gaining market share as investors de-risk, tightening overall crypto liquidity.
As of February 20, 2026, the circulating supply of USDT has dropped by roughly 1.5 billion dollars this month. After peaking near 187 billion dollars in early January, supply has slid below 184 billion as of February 18. The move marks the first negative market cap growth for USDT in two years and a clear break from months of steady expansion.
Supply Reversal After Two Years of Growth
While the decline is far smaller than the panic-driven selloff during the FTX crisis in late 2022 – when USDT’s market value plunged 5.7 percent in just seven days – the current pullback stands out for different reasons. Instead of a sudden collapse, this contraction appears to be driven by regulatory reshuffling, competitive pressure, and broader market de-risking.
Tether has accelerated the process itself. In early February, the company carried out record back-to-back token burns totaling 3.5 billion USDT, following a separate 3 billion burn in January. These reductions have amplified the visible drop in circulating supply.
MiCA Forces European Reshuffle
Regulatory pressure from Europe is playing a central role. The full implementation of the EU’s Markets in Crypto-Assets framework on December 30, 2025 has significantly altered the stablecoin landscape across the European Economic Area.
Under Markets in Crypto-Assets Regulation, issuers must meet strict licensing and reserve standards. Tether has declined to align USDT with those requirements, prompting multiple major exchanges to restrict or remove the token for European users. Platforms including Binance, Coinbase, Kraken, OKX, Bitstamp and Crypto.com have either delisted or limited USDT access in the region. In many cases, exchanges have promoted MiCA-compliant alternatives such as Circle’s USDC.
Competition and Capital Rotation
The shift is already visible in supply trends. While USDT contracts, USDC has expanded nearly 5 percent in February to approximately 75.7 billion dollars. New entrants are also entering the arena, including World Liberty Financial’s USD1, intensifying competition in an increasingly regulated market.
Market sentiment is adding further pressure. The broader crypto sector has been in a sustained correction since October 2025, with nearly 2 trillion dollars erased from total market capitalization. Analysts describe the current environment as risk-off, with investors moving funds from stablecoins back into traditional fiat or reducing exposure entirely. At the same time, billions have reportedly flowed out of U.S.-listed spot Bitcoin ETFs, reinforcing signs of institutional de-risking.
There are also renewed questions about reserves. Despite Tether’s profitability, recent commentary has pointed out that its equity cushion stands at roughly 3.3 percent of total assets, leaving a relatively thin buffer if reserve values fluctuate sharply.
Liquidity Impact on Bitcoin and the Broader Market
For the market, shrinking USDT supply typically means reduced liquidity. Stablecoins function as the core settlement layer of crypto trading, and a contraction often weakens price support for Bitcoin. Lower stablecoin balances on exchanges can lead to sideways trading or deeper corrections if selling pressure intensifies.
Whether this is a temporary adjustment driven by European compliance changes or the start of a longer-term structural shift in stablecoin dominance remains to be seen. What is clear is that for the first time in two years, USDT is no longer expanding – and that change alone is reshaping crypto liquidity dynamics.
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Source: https://coindoo.com/tethers-usdt-shrinks-as-europe-tightens-rules-biggest-drop-since-2022/