Leading Stablecoin Tether Contracts Again as Market Cap Looks Headed for Second Consecutive Monthly Drop

Tie USDT$1.0002The world’s largest stablecoin by market value, continues to contract and appears headed for a second consecutive monthly contraction, signaling challenging conditions for a broader, more sustainable market recovery.

Tether’s market capitalization has fallen 0.8% to $183.61 billion this month, extending January’s 1% drop 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 drives cryptocurrency markets. When the fuel runs out, everything slows down, and that’s exactly what we’re seeing,” said Rachael Lucas, cryptocurrency analyst at BTC Markets, in a post on LinkedIn.

Stablecoins are digital tokens whose value is pegged to an external reference, such as the US dollar or other fiat currencies. They are often promoted as tokenized versions of fiat currencies and help users avoid the price volatility risks associated with other tokens, such as bitcoin.

That’s why, over the years, they have evolved into funding currencies for cryptocurrency trading and a way to move capital across borders, including daily payments in some regions.

Tether’s current contraction indicates capital outflows from the crypto market. This, along with tepid demand for US-listed spot ETFs, casts doubt on the sustainability of potential recovery rallies in bitcoin and the broader crypto market.

bitcoin btc$65,121.75The leading cryptocurrency by market value, has failed to build momentum since its downtrend stopped near $60,000 on February 6. Prices briefly bounced 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 recovered to nearly $75 billion since its drop in January to $70 billion, it remains stable so far this year.