What happened?
Since the official implementation of the MiCA regulatory framework by the European Union, the market value of USDT has dropped by 1.2% within a week, reaching around $137 billion, marking the largest weekly market value decline since the FTX crash in November 2022.
However, the stablecoin USDC has not been affected and has instead seen a diverse distribution of circulating supply, doubling its market value from the bottom to around $44 billion.
USDT Market Value Declines by 1.2%: MiCA Regulations Impact the European Market
At the end of 2024, the cryptocurrency market experienced a long-awaited revival as Bitcoin surged to a new all-time high, becoming the focus of the global financial market. However, at the same time, stablecoins, which are an important cornerstone of the crypto market, faced unprecedented challenges in a rapidly changing market and regulatory environment.
On December 30, 2024, after the full implementation of the Markets in Crypto-Assets Regulation (MiCA) by the European Union, the market value of the largest stablecoin, Tether (USDT), dropped from $138.8 billion to $137 billion within a week, marking the largest weekly decline since the FTX crash.
MiCA regulations require major stablecoin issuers to hold more than 60% of their reserves in low-risk European commercial banks. This requirement poses a significant challenge for issuers like Tether, which operate globally.
In addition, due to compliance issues with MiCA regulations, several European exchanges and Coinbase have already stopped supporting USDT, further increasing the pressure on USDT in the European market.
Although 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 Director at the decentralized lending platform WeFi, stated, “Considering Tether’s significant capital and global adoption, meeting this requirement economically without disrupting the overall crypto ecosystem is not feasible.”
Will the decline in USDT market value affect the cryptocurrency market?
The existence of stablecoins is somewhat like a “common currency” in the crypto world, and most global investors prefer to use stablecoins as a medium of exchange for spot purchases of cryptocurrencies or derivatives. The leading stablecoin, USDT, can be considered a key element in accessing the crypto market.
Therefore, the withdrawal and decline in market value of USDT have led to speculation within 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 approximately 80% of USDT’s trading volume comes from Asia. Therefore, the impact of MiCA regulations on USDT’s global dominance is quite limited.
Cryptocurrency analyst Bitblaze also stated that since Asia is the primary venue for Tether trading volume, the impact of MiCA regulations has been somewhat diluted.
“USDT is the largest stablecoin with a market value 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 on Twitter.
USDC Market Value Doubles: Rebounding from the Bottom to $44 Billion
Compared to the decline in USDT performance, the US dollar-based stablecoin USDC has experienced rapid growth in 2024.
According to data from Blockworks Research, its circulating supply has surged 80% from the 2023 low point of $24 billion to nearly $44 billion as of January 2.
This growth in numbers reflects an increase in activity on the blockchain and drives the demand for stablecoins.
The reason USDC has not been negatively affected by the European Union’s Markets in Crypto-Assets regulatory framework (MiCA) is primarily due to its issuer, Circle, complying with the relevant regulations and ensuring its operations meet the strict requirements of MiCA, allowing it to be used in the EU region.
Furthermore, the distribution of USDC’s circulating supply has become increasingly diverse.
Dan Smith, Director of Data Analysis at Blockworks, stated on Twitter 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 blockchains by users.
Currently, 65% of USDC’s circulating supply is still on Ethereum, while Solana accounts for about 10%, and other blockchains like Base, Arbitrum, and Hyperliquid collectively make up around 15%. This is a significant change compared to 2023 when 85% was concentrated on Ethereum.
Grayscale, in a research report, pointed out that retail traders are gradually turning to 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) increased from $1.5 billion at the beginning of the year to $8.5 billion at the end of the year in 2024, demonstrating its rapid ecosystem growth.
Amidst the frenzy of the bull market and regulatory storms, the future of stablecoins has become a hot topic in the industry and lays the groundwork for the next steps in the entire cryptocurrency market’s trajectory.
References: cointelegraph, theblock, coindesk