Tether USDT Shrinks in Second Monthly Drop

Tether (USDT) market cap is on track for a second consecutive monthly decline, dropping 0.8% to $183.61 billion in February after January's 1% retreat from a record $186.84 billion, according to market data. The back-to-back contraction in the world's largest stablecoin has not occurred since the TerraForm Labs implosion in 2022, raising fresh concerns about crypto-market liquidity heading into spring.

Why Is Tether's Market Cap Dropping?

Shrinking Tether supply points to net capital leaving the crypto ecosystem. Stablecoins function as the primary on-ramp for digital-asset trading -- when their circulating value contracts, it typically reflects investors redeeming tokens for fiat rather than deploying fresh funds. The current drawdown extends a pattern that began in late January 2026, when USDT slipped from its all-time high of $186.84 billion, data from CoinDesk show.

"Stablecoins are the fuel that powers crypto markets. When the fuel drains, everything slows down, and that is exactly what we are watching unfold," Rachael Lucas, crypto analyst at BTC Markets, said in a LinkedIn post on February 25.

Stablecoins are the fuel that powers crypto markets. When the fuel drains, everything slows down, and that is exactly what we are watching unfold.

Bitcoin Struggles to Regain Momentum

Bitcoin (BTC) has failed to sustain upward momentum since its downtrend stalled near $60,000 on February 6. Prices staged a brief recovery above $70,000 in the days that followed but have since retreated to roughly $65,520, according to market data. Tepid demand for U.S.-listed spot Bitcoin ETFs compounds the headwind, casting doubt on the durability of any near-term rally.

The simultaneous contraction in stablecoin supply and lackluster ETF inflows suggests that fresh capital is not entering the market at rates needed to support a sustained recovery in digital-asset prices.

USDC Holds Steady but Growth Stalls

The decline is not limited to Tether alone. USDC, the second-largest stablecoin and a U.S.-regulated alternative, has shown more resilience but remains essentially flat on the year. Its market capitalization recovered to nearly $75 billion after dipping to $70 billion in January, yet the rebound has not translated into meaningful year-to-date growth, according to on-chain data.

Together, the stagnation in both major stablecoins underscores broader caution among market participants. Analysts note that sustained stablecoin contraction historically precedes extended periods of sideways or bearish price action across the crypto market.

What This Means Going Forward

Traders and investors will be watching Tether's supply trajectory closely through the end of February and into March. A third consecutive monthly drop would mark the longest sustained contraction since 2022 and could accelerate risk-off positioning across crypto markets. Until fresh stablecoin minting resumes at scale, the path to a durable Bitcoin price recovery faces a significant liquidity hurdle.