The world’s leading stablecoin, Tether's USDT, witnessed a $2 billion reduction in its market capitalization this December. This downturn correlates with the European Union's impending Markets in Crypto Assets (MiCA) regulation, set to be fully enacted by December 30, 2024. The regulatory measures have begun impacting Tether’s operability within the EU, posing significant challenges.
Under MiCA stipulations, stablecoin issuers must secure specific licenses to operate within the EU. Tether has yet to meet these stringent requirements, causing European exchanges to preemptively delist its USDT stablecoin. This regulatory anticipation has led to a notable decline in USDT’s market cap, falling from $140.5 billion to $138 billion, marking the most substantial drop in a year amid consistent growth.
By December, USDT, designed to maintain a 1-to-1 peg with the US dollar, hit a two-year trading low of $0.997.
Market apprehension regarding USDT's legality under MiCA is widespread, fueled by fear, uncertainty, and doubt (FUD). However, holding USDT remains lawful under the new rules. Users can store USDT in non-custodial wallets and trade on decentralized exchanges, though MiCA-compliant exchanges will not support its use.
Crypto analyst Axel Bitblaze minimizes the EU’s delisting impact on USDT, citing Asia’s dominance, with 80% of its trading volume originating there. Despite FUD, USDT's market cap has only decreased by 1.4%, and its trading activity surpasses the top 10 cryptocurrencies combined. Tether is gearing up for regulatory changes by reducing its EU presence and investing in MiCA-compliant stablecoins.
Tether has historically withstood similar FUD episodes. In 2022, following FTX’s bankruptcy, USDT briefly lost its peg, coinciding with Bitcoin's drop below $16,000. Two years later, Bitcoin has surged past $100,000 despite such episodes. Similarly, Tether faced allegations of sanctions violation and money laundering in October, briefly unsettling the market before recovery ensued.
Bitblaze advises viewing FUD as a buying opportunity, suggesting today's prices will rise by 2025. Blockchain executive Samson Mow echoes this, pointing to Tether's substantial growth and resilience. Mow highlights Tether’s $143 billion AUM, its rank among top US treasury holders, and robust backing from financial giants.
The latest challenges signify not decay but resilience and adaptability in Tether's ongoing journey through regulatory landscapes.
Amidst regulatory pressure in Europe, Tether has announced it is launching a new euro-pegged stablecoin which could fulfil the requirements set by the regulators in the region. The impact of this decision remain to be seen.