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3 reasons why USDC stablecoin dropping below $50B market cap is Tether’s gain

3 reasons why USDC stablecoin dropping below B market cap is Tether’s gain

The market capitalization of USD Coin, a stablecoin issued by U.S.-based payment tech firm Circle, has dropped below $50 billion for the first time since January 2022.

On the weekly chart, USDC’s market cap, which reflects the number of US dollar-backed tokens in circulation, fell to $49.39 billion on September 26, down almost 12% from its record high of $55.88 billion, established merely three months ago.

In contrast, the market cap of Tether, which risked losing its top stablecoin position to USDC in May, crossed above $68 billion on September 26, albeit still down 17.4% from its record high of $82.33 billion in May 2022.

The divergence between USDT and USDC shows investors’ renewed preference for the former. Let’s look at the factors boosting Tether as the top stablecoin.

Binance’s USDC suspension

Binance, the world’s largest cryptocurrency exchange by volume, announced in September that it would convert its users’ USDC balances for its stablecoin, Binance USD (BUSD). The conversion will commence on September 29 and does not apply to USDT.

The exchange said it wants to “enhance liquidity and capital-efficiency for users” via what appears to be a forced conversion in an increasingly competitive stablecoin sector. As a result, Binance suspended spot, future, and margin trading in USDC.

Whales ditch USDC after Terra fiasco

The USDC supply help by top 1% addresses (aka whales) has dropped to 88.36% in September from its year-to-date high of 93.84% in February, according to data collected by Glass node.

Interestingly, the plunge accelerated after Terra, a $40-billion “algorithmic stablecoin” project, collapsed in May, stirring a negative sentiment toward the entire stablecoin industry.

Tornado Cash sanctions 

The USDC market cap plunge has accelerated after the US Treasury imposed sanctions on crypto mixing service Tornado Cash over money laundering concerns. 

Circle responded to the sanctions by freezing all USDC wallets owned by Tornado Cash. The firm also prevented addresses that may be associated with the banned mixing service from using USDC. In contrast, Tether avoided blocking Tornado Cash addresses.

Independent market analyst Geralt Davidson treated Circle’s response to the Tornado Cash sanction as a cue that holding USDC is riskier than its stablecoin rivals.

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