Regulation
Tether’s stablecoin is also popular with banks
In 2023, there was a real turning point for USDT, Tether’s crypto stablecoin on the US dollar, so much so that it was appreciated even by banks.
Crypto news: the 2023 turning point of the stablecoin Tether among banks
The key point in this story was the failure of some major US banks in March 2023.
In fact, in particular, the closure of Silicon Valley Bank (SVB) resulted in a loss of dollars for Circlei.e. the issuer of Tether’s main rival (USDC).
At that time, what was commonly considered the safest stablecoin (Circle’s USDC) lost its peg to the dollar, although it quickly regained it when the US central bank (Fed) stepped in to cover all the deposit shortfalls of failed banks.
Tether’s USDT, which is traded across all crypto markets, is not inherently zero.
At that point, many stopped using USDC and started using USDT.
The trend over time
Taking into account the market capitalization of USDT and USDC, before the Terra/Luna crypto ecosystem implosion in May 2022, Tether’s stablecoin was worth $83 billion, while Circle’s was worth around $50 billion.
At that time, USDT had a market cap 66% higher than USDC.
The implosion of Terra/Luna, however, was due to the decoupling of their algorithmic stablecoin, UST, from the price of the US dollar, which generated a lot of fear among USDT holders.
But despite a 20% drop in its market capitalization in three months, Tether’s stablecoin has not lost its peg to the dollar and has therefore been able to grow again.
By that time, USDT had fallen to $66 billion, while USDC had risen to $55, narrowing the gap from 66% to 20%.
Since then, however, USDC’s market cap has started a sharp and sustained decline, while USDT has instead stopped falling.
The 2023
At the start of 2023, USDT was still at $67 billion, but USDC had fallen to $44 billion.
With the closure of Silicon Valley Bank in March 2023, USDC’s market cap plummeted due to the dollar’s deregulation, albeit temporary, and the flight to other stablecoins.
This collapse did not stop until November of the same year, when it had already fallen to $24 billion. It is worth noting that compared to the peak of $55 billion in July 2022, the loss was 56%.
In January 2023, however, the cryptocurrency market had started to recover, so when the USDC outflow happened in March, many simply turned to USDT, also because Tether’s stablecoin had not lost its peg to the dollar.
Thus, the market capitalization of USDT reached $84 billion, returning to the previous year’s highs.
2024 for stablecoins
Starting in November last year, a real bull run began in the cryptocurrency markets, which ended only in March this year.
At that time, both USDT and USDC market capitalization increased.
While Circle’s stablecoin just surpassed $30 billion, USDT’s stablecoin even surpassed $110 billion over the rest of the year.
Currently, the gap between the market caps of the world’s first and second largest stablecoins has skyrocketed to +245%.
USDT’s current dominance in the stablecoin market is even 70%, which is more than double that of all other stablecoins combined.
Banks get more crypto by moving closer to Tether (USDT) stablecoin
From the peak in 2022 to today, the market cap of Tether’s stablecoin has increased by 37%, while that of USDC has fallen by 38%.
While USDT’s growth is likely primarily due to the growth of cryptocurrency markets, in conjunction with USDC’s decline, traditional financial institutions may have played some role as well.
The fact is that to operate directly in the cryptocurrency market, it is not practical to use fiat currency, but rather stablecoins. This also applies to traditional financial institutions, so even crowdfunding companies that choose to operate in the cryptocurrency markets inevitably end up encountering stablecoins.
With a dominance of 70%, it is absolutely inevitable that even traditional companies that want to operate in crypto markets will end up using USDT. Moreover, over time, it has also provided greater guarantees of stability, compared to other stablecoins that seemed safer but were not really.
The European MiCA regulation
A turning point could, however, occur in the countries of the European Union with the introduction of new cryptographic regulations (Mica).
In fact, MiCA introduces the recognition of stablecoin as an electronic money token, thus forcing exchanges to remove those that do not obtain such recognition.
Although the new stablecoin regulations have already come into force in the EU, starting June 30, exchanges have 60 days to comply.
The current situation is therefore not yet definitive, and it will take about another month before we have certain information.
As things stand, USDC has obtained recognition as an electronic currency token in the EU, while USDT has not yet obtained it. Despite this, Tether’s stablecoin has not yet been delisted from crypto exchanges in Europe, precisely because there is still a month left to comply.
It is important to stress that this is a situation limited exclusively to EU countries and that there are only two possible solutions.
Either by the end of August, USDT will gain EU recognition as an electronic money token, as USDC has already done, or it will have to be made unavailable on exchanges for users residing in an EU country.
In the event that this recognition is not obtained, USDT could be replaced by aUSDT, that is, Tether’s stablecoin pegged to the US dollar, but backed by gold and not dollars. For the moment, however, the odds seem to lean more towards the hypothesis that USDT will finally manage to obtain recognition as an electronic money token in the EU.