What happened?
Since the EU regulatory framework MiCA officially came into effect, the market value of USDT has dropped by 1.2% within a week, falling to around $137 billion, marking the largest weekly market value decline since the collapse of FTX in November 2022.
On the contrary, the stablecoin USDC has not been affected and its circulation has become more diversified and rich, doubling its market value from the bottom to $44 billion.
USDT Market Value Decline by 1.2%: MiCA Regulation Impacting the European Market
At the end of 2024, the cryptocurrency market saw a long-awaited resurgence, with Bitcoin hitting a historic high and becoming the focus of the global financial market. However, at the same time, “stablecoins,” as an important cornerstone of the crypto market, faced unprecedented challenges in the rapidly changing market and regulatory environment.
On December 30, 2024, following the full implementation of the EU regulatory act MiCA (Markets in Crypto-Assets Regulation), the market value of the world’s largest stablecoin Tether (USDT) plummeted from $138.8 billion to $137 billion within a week, marking the largest weekly decline since the collapse of the international exchange FTX.
The MiCA regulation requires that issuers of large stablecoins must hold more than 60% of reserves in low-risk European commercial banks. This is a highly challenging requirement for a global issuer like Tether.
Furthermore, due to compliance issues with the MiCA regulation, several European exchanges and Coinbase have also stopped supporting USDT, further increasing pressure on USDT in the European market.
While EU traders can still hold USDT in non-custodial wallets, they are unable to trade on centralized exchanges that comply with MiCA standards.
Agne Linge, Growth Manager at decentralized lending platform WeFi, stated, “Given Tether’s significant capital and global adoption, meeting this demand economically without disrupting the overall crypto ecosystem is not quite feasible.”
Will the USDT Market Value Decline Affect the Cryptocurrency Market?
The presence of stablecoins is somewhat like the “common currency” of the crypto sphere, with global investors mostly using stablecoins as a means of exchange for spot purchases of cryptocurrencies or derivative trading. The leading stablecoin USDT is essentially a key element to access the crypto market.
Therefore, the withdrawal and market value decline of USDT have sparked speculation in the community about a potential downturn in the overall development of the cryptocurrency market.
However, Linge believes that the European market accounts for only a small portion of the global stablecoin trading volume, and around 80% of USDT trading volume comes from Asia, so the impact of the MiCA regulation on USDT’s global dominance is relatively limited.
Cryptocurrency analyst Bitblaze also mentioned that as Asia is the major hub for Tether trading volume, the impact of MiCA is somewhat mitigated.
“USDT is the largest stablecoin, with a market cap of $138 billion and a daily trading volume of $44 billion. As of today, 80% of USDT’s trading volume comes from Asia, so the EU delisting won’t have any severe impact,” Bitblaze pointed out.
USDC Market Value Doubles: Rebounding from the Bottom to $44 Billion
Compared to the decline in the performance of the stablecoin USDT, the USD-based stablecoin USDC experienced rapid growth in 2024.
According to data from Blockworks Research, its circulating supply surged by 80% from a low of $24 billion in 2023 to nearly $44 billion by January 2.
This growth in numbers reflects an increase in activity on the blockchain and drives the demand for stablecoins.
The reason why USDC has not been negatively impacted by the EU’s Markets in Crypto-Assets Regulation (MiCA) is mainly because its issuer Circle has complied with the relevant regulations and ensured its operations meet the strict requirements of MiCA, thus still being usable in the EU region.
In addition, the distribution of USDC’s circulation is becoming more diversified and rich.
Dan Smith, Data Analysis Director at Blockworks, expressed on X platform that users are gradually migrating from Ethereum to other blockchain networks such as Solana and Hyperliquid.
This change not only reflects the diversification of blockchain applications but also indicates an increasing trust and reliance on other blockchain networks by users.
Currently, 65% of USDC’s circulating supply remains on Ethereum, with Solana accounting for 10%, and other blockchain networks like Base, Arbitrum, Hyperliquid collectively making up about 15%.
This is a significant change compared to 85% concentration on Ethereum in 2023.
Grayscale noted in a research report that retail traders are gradually shifting towards Solana, primarily influenced by speculative opportunities in meme coins and AI tokens. Additionally, according to on-chain data platform DefiLlama, Solana’s total value locked (TVL) surged from $1.5 billion at the beginning of the year to $8.5 billion by the end of 2024, demonstrating the rapid growth of its ecosystem.
Amidst the bull market frenzy and regulatory storms, the future of stablecoins has become a hot topic in the industry, setting the stage for the next direction of the entire cryptocurrency market.
Reference: cointelegraph, theblock, coindesk