Tether's USDT Suffers Sharpest Weekly Market Value Decline in Two Years, Sparring Volatility Concerns

Tether's USDT, the world's leading dollar-pegged stablecoin, has experienced the sharpest weekly decline in market value in two years

World's leading dollar-pegged stablecoin, Tether's (USDT) has noted the sharpest weekly decline in market value in two years, sparking concerns of market volatility.

This week, USDT's market cap slid by over 1% to $137.24 billion, marking the most significant decline since the second week of November 2022, when FTX exchange crashed, as per data from TradingView. It hit a record $140.72 billion in mid-December.

The decline comes after several European Union (EU)-based exchanges and Coinbase (COIN) decided to remove USDT due to compliance issues with the EU's Markets in Crypto-Assets (MiCA) regulations that fully came into effect on Dec. 30. However, the rules on stablecoins — cryptocurrencies whose value is pegged to a real-world asset like the dollar — kicked in six months ago.

The regulation mandates issuers to have a MiCA license for offering or trading asset-referenced tokens (ARTs) or e-money tokens (EMTs) within the bloc. An ART is a crypto asset that aims to maintain a stable value by referencing another asset like gold, crypto tokens or a combination of both, including one or more official currencies. ERTs reference a single national currency, just as USDT does.

While EU-based traders can still hold USDT in non-custodial wallets, they are unable to trade it on MiCA-compliant centralized exchanges.

Being a gateway to the crypto market, investors use USDT extensively to fund spot cryptocurrency purchases and derivatives trading. Hence, the delistings and drop in market value have sparked speculation on social media of a broader crypto market slide.

But these concerns might be exaggerated, and the negative impact could be limited to the euro area at best, said Karen Tang, head of APAC partnerships at Orderly Network, a permissionless Web3 liquidity layer, in a post on X.

"Access to @Tether_to be restricted in the EU due to MiCa regulation isn’t going to harm USDT dominance," wrote Tang. "EU isn’t the largest crypto market. Most crypto trading volume occurs in Asia and U.S. All this will do is stunt the EU's digital assets innovation, which is already slow due to convoluted overregulation. If I could short the EU, I would…"

Crypto analyst Bitblaze stated that Asia contributes the largest share to tether volume, downplaying the impact of MiCA-led delistings in Europe.

"USDT is the largest stablecoin, with a market cap of $138.5B and a daily trading volume of $44B. At the moment, 80% of USDT's trading volume is in Asia, so the EU delisting won’t have any severe impact," noted Bitblaze on X.

Tether has invested in StablR and Quantoz Payments, two MiCA-compliant businesses, to ensure regulatory alignment.