Tether's USDT, the dominant US dollar-pegged stablecoin, is experiencing its most significant monthly supply decrease in three years. Blockchain data reveals that large holders are stepping up redemptions, leading to a substantial outflow.
So far in February, the circulating supply of USDT has fallen by approximately $1.5 billion. This follows a $1.2 billion reduction in January, placing USDT on track for its steepest monthly decline since the collapse of cryptocurrency exchange FTX in November 2022. Following the FTX implosion, USDT supply saw a $2 billion decrease in December 2022.
This contraction in USDT supply could indicate a broader reduction in crypto market liquidity, as USDT serves as a primary entry point for investors. With a market capitalization of $183 billion, USDT accounts for roughly 71% of the total stablecoin market.
Despite the pullback in USDT, the overall stablecoin market capitalization has remained relatively stable in February, rising 2.33% to $307 billion. While leading stablecoins like USDT and Circle's USDC saw decreases, some smaller stablecoins experienced significant growth.
Analysis shows that large cryptocurrency investors, or whales, have been reducing their USDT holdings. Concurrently, "smart money" traders have also been net sellers. However, new market participants are entering, with fresh wallets acquiring substantial amounts of USDT over the past week. This dynamic suggests a market split between exiting large holders and incoming new capital.