what happen?
Since the EU regulatory framework MiCA was officially launched, the USDT market value has fallen by 1.2% in a week, falling to about $137 billion, setting the largest weekly market value decline since the FTX crash in November 2022.
The stablecoin USDC was not affected. Instead, the circulation distribution became more and more diverse, and its market value doubled, rising from the bottom to US$44 billion.
USDT market value fell 1.2%: MiCA regulations have an impact on the European market
At the end of 2024, the cryptocurrency market ushered in a long-awaited recovery wave. Bitcoin (Bitcoin) broke through all-time highs in one fell swoop and became the focus of the global financial market. However, at the same time, "stablecoins", which are an important cornerstone of the crypto market, are facing unprecedented challenges in the rapidly changing market and regulatory environment.
On December 30, 2024, after the full implementation of the EU regulation MiCA (Markets in Crypto-Assets Regulation), the market cap of the world's largest stablecoin Tether (USDT) dropped 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 large stablecoin issuers must keep over 60% of their reserves in low-risk European commercial banks. This is a challenging requirement for global issuers like Tether.
Additionally, due to compliance issues with MiCA regulations, several European exchanges and Coinbase have also stopped supporting USDT, further increasing pressure on USDT in the European market.
EU traders can still hold USDT in non-custodial wallets, but they cannot trade it on centralized exchanges that comply with MiCA standards.
Agne Linge, Growth Director at the decentralized lending platform WeFi, stated, 'Given Tether's massive capital and global adoption rate, meeting this demand economically without disrupting the overall crypto ecosystem is quite challenging.'
Will the decline in USDT's market cap affect the crypto market?
The existence of stablecoins is somewhat like 'the common currency of the crypto world', as global investors tend to use stablecoins as a medium for purchasing cryptocurrency spot or trading derivatives, with the leading stablecoin USDT essentially being the key element to enter the crypto market.
Therefore, the exit of USDT and the decline in market cap have sparked speculation in the community about a potential downturn in the overall cryptocurrency market.
However, Linge believes that the European market accounts for only a small portion of global stablecoin trading volume, and about 80% of USDT's trading volume comes from Asia, so the impact of MiCA regulations on USDT's global dominance is actually quite limited.
Cryptocurrency analyst Bitblaze also noted that Asia is the largest market for Tether's trading volume, hence the impact of MiCA has slightly diminished.
'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 exit won't have any serious impact,' Bitblaze stated on X.
USDC Market Cap Doubles: Rising from the Bottom to $44 Billion
In contrast to the decline of stablecoin USDT, dollar-based stablecoin USDC has experienced rapid growth in 2024.
According to data from Blockworks Research, its circulating supply surged 80% from a low of $24 billion in 2023, reaching nearly $44 billion as of January 2.
Such numerical growth reflects an increase in blockchain activity and drives the demand for stablecoins.
The reason USDC has not been negatively impacted by the EU's MiCA (Markets in Crypto-Assets Regulation) is primarily because its issuer Circle has complied with relevant regulations and ensured its operations meet the strict requirements of MiCA, thus still allowing its use in the EU.
In addition, the distribution of USDC's circulation has become increasingly rich and diverse.
Dan Smith, Head of Data Analysis at Blockworks, stated on the 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 shows that users' trust and reliance on other blockchains are increasing.
Currently, 65% of the circulating supply of USDC is still on Ethereum, while Solana's share has reached 10%, with other blockchains like Base, Arbitrum, and Hyperliquid accounting for about 15%.
Compared to 2023, where 85% was concentrated on Ethereum, this is a significant change.
Grayscale pointed out in a research report that retail traders are gradually turning to Solana, mainly influenced by speculative opportunities in on-chain meme coins and AI tokens. Furthermore, 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 the year, demonstrating rapid growth in its ecosystem.
Amidst the intertwining of a bull market frenzy and regulatory storms, the future of stablecoins has become a hot topic in the industry, laying the groundwork for the next steps in the entire crypto market.
References: cointelegraph, theblock, coindesk
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