• The market cap of Tether’s USDT continued to fall for the second consecutive month, indicating a change in the liquidity.
  • The growth in the USDC stablecoin indicates that there is a rotation of funds within the stablecoins, and not a withdrawal from the crypto markets.

Tether has observed another fall in the market capitalization of its major stablecoin, Tether, for the second consecutive month. It is noted that the market capitalization of USDT reduced from above $186 billion in January to close to $183 billion in February. This reduction is one of the most prominent in supply. This is since the turmoil that happened after the crash in the crypto market in 2022. The supply of stablecoins is considered a representation of the liquidity level in the crypto market.

USDT is a key player in the crypto market due to the fact that investors often use it as a base pair for spot and derivative trades. As the circulating supply reduces, the liquidity available for trading may reduce as well. Analysts have noted that the month of February has seen a reduction of $1.5 billion in the supply of USDT. This is a sequential decrease that has been seen after a similar reduction in the month of January. And this has drawn attention to the dynamics of stablecoin supply.

Capital Rotation Indicates Changes in Stablecoin Preferences

Although the supply of USDT has been decreasing, other stablecoins have demonstrated relative growth. The market capitalization of USD Coin has increased, approaching a value of $75 billion in February. The total market capitalization of the stablecoin sector is currently close to $307 billion, suggesting that capital seems to rotate rather than leave the sector. Experts believe that changes in regulations and platform policies may be responsible for the changes in these allocation preferences.

Stablecoins are a liquidity channel between fiat currency and blockchain platforms. They enable trading, lending, and decentralized financial services. When the largest market for stablecoins reduces, market participants start analyzing whether the demand for risk assets could experience a temporary slowdown. Although the supply of USDT has been decreasing, it is still trading close to its one-dollar value, suggesting that market participants remain confident in its price stability. Market participants are currently analyzing wallet transactions and exchange balances to determine whether the growth of supply might resume in the coming months.

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