USDT Experiences Largest Decline Since FTX Crash amid MiCA Concerns, Fuelling Fears of Broad Crypto Market Downturn

The leading digital dollar-pegged stablecoin globally, USDT by Tether, has witnessed its most significant weekly fall in market value in the past two years, sparking concerns about potential market instability.

Over the past week, USDT’s market cap has dipped over 1%, dropping to a current total of $137.24 billion, as per data from TradingView. This slump is the most substantial since the FTX exchange crash in November 2022’s second week. In mid-December, USDT had reached a peak market cap of $140.72 billion.

This drop in value is a result of a series of decisions by several Europe-based digital currency exchanges, including Coinbase (COIN), to remove USDT. This move was in response to compliance issues with the European Union’s (EU) newly implemented Markets in Crypto-Assets (MiCA) regulations, which came into full effect on December 30th. The MiCA regulations, which pertain to stablecoins – digital currencies whose value is pegged to a real-world asset such as the dollar – had been activated six months prior.

The MiCA regulations mandate that issuers must hold a MiCA license to publicly offer or trade Asset-Referenced Tokens (ARTs) or E-Money Tokens (EMTs) within the EU. An ART is a digital asset that aims to maintain a stable value by referencing another asset like gold or crypto tokens, or a combination of both, including one or more official currencies. EMTs, like USDT, reference a single national currency.

EU-based traders can still possess USDT in non-custodial wallets, but trading on MiCA-compliant centralized exchanges is prohibited.

USDT is a crucial gateway to the digital currency market, widely used by investors to fund spot cryptocurrency purchases and derivatives trading. Consequently, the delistings and drop in market value have sparked speculation of a wider crypto market downturn on social media.

However, these fears might be unfounded, and the negative impact could be limited to the euro area, suggests Karen Tang, the head of APAC partnerships at Orderly Network, a permissionless Web3 liquidity layer.

Tang clarified that the EU is not the largest crypto market, and the majority of crypto trading volume occurs in Asia and the U.S. She added that this move might hinder the EU’s digital assets innovation, which is already slow due to extensive regulation.

Crypto analyst Bitblaze also downplayed the impact of MiCA-led delistings in Europe, stating that Asia accounts for the lion’s share of the tether volume. He noted that “USDT is the largest stablecoin, with a market cap of $138.5B and a daily trading volume of $44B. As of today, 80% of USDT’s trading volume comes from Asia, so the EU delisting won’t have any severe impact.”

In a bid to ensure regulatory alignment, Tether has made investments in MiCA-compliant companies StablR and Quantoz Payments.

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