Tether’s $USDT briefly became the largest crypto asset by market cap, flipping Ethereum on the 26th of June. This is followed by a sharp, Bitcoin-driven plunge that dragged the $ETH price to a low of $1.51K.
Notably, the extended price dip contracted $ETH’s market cap to $184.4B, slightly below $USDT’s market supply of $186B.
Source: Coingecko
The Friday move and resulting brief shift were purely due to extended selling pressure. An extended price decline in $ETH could make $USDT’s another stab at the second-largest asset position.
But it does not mean market sentiment is no longer bullish on $ETH, as this was tied to a broader market move. It’s worth pointing out that during such volatile scenarios, investors exit crypto positions and convert funds into stablecoins.
As such, these risk-off moves during volatility will directly increase stablecoin supply. So, the world’s largest stablecoin, $USDT, briefly toppling $ETH, was not entirely a surprise.
Stablecoin growth slows in Q2
Perhaps a more structural shift that would underscore capital outflows would be if $USDT and broader stablecoins recorded redemptions, too.
It would mean that investors are exiting the crypto market altogether, not just parking capital into stablecoins to wait for dips.
Interestingly, despite $USDT briefly flipping $ETH, the market has seen broader capital outflows since late May.
Notably, the stablecoin supply had eased slightly from its recent peak of $322B in mid-May to $313B as of press time. In other words, about $10B has been redeemed in the past six weeks, which coincided with the broader correction among top crypto assets, including $BTC.
Source: DeFiLlama
What $USDT’s 9% market share means for crypto
From another angle, this meant that the broader risk-off in crypto markets, despite a few altcoins posting impressive recoveries recently.
In fact, this muted market was further reinforced by $USDT market dominance and the $ETH/$BTC ratio, which track risk-on sentiment and altcoin season, respectively.
Notably, the ETHBTC ratio has retreated lower since mid-May, underscoring the slow pace of a broader altcoin season rally.
Source: ETHBTC ratio vs. $USDT dominance, TradingView
Over the same period, the $USDT market share jumped from 7% to 9%, levels last seen during the pointy end of the 2022 bear market. Simply put, investors were highly cautious and parked capital in stablecoins.
Overall, $USDT flipping $ETH in market cap flags nothing of concern. But the most important cue was the rising $USDT dominance hitting the 2022 bear market bottom levels.
Final Summary
$USDT briefly flipped $ETH in market cap after $ETH’s supply dipped to $184B on the 26th of June.
$USDT market share rose to 9%, nearing levels last seen during the 2022 bear market bottom.
