• USDT’s sharp supply drop reflected regulatory scrutiny and macroeconomic uncertainties.
• Bitcoin faced reduced buying pressure, with USDT’s contraction constraining liquidity. 

The market is navigating uncertain waters as Tether [USDT], the industry’s leading stablecoin, has seen its circulating supply drop by over $1.3 billion in just ten days.

As the lifeblood of crypto liquidity, USDT’s sudden contraction raises alarms about potential shifts in market dynamics.

Whether driven by regulatory scrutiny, waning investor confidence, or broader market adjustments, the decline comes at a critical juncture with Bitcoin teetering near key support levels.

The question now is whether this signals a temporary slowdown in trading activity or a more profound market recalibration.

USDT supply contraction

Recent data revealed a sharp decline in USDT’s circulating supply, dropping from a peak of approximately $140.5 billion to $139.2 billion over ten days. This contraction likely reflects a combination of factors.

First, heightened regulatory scrutiny, particularly in the U.S. post-FTX collapse, may have prompted redemptions as investors seek safer fiat alternatives.

Second, diminished trading volumes across major exchanges indicate reduced demand for stablecoin liquidity, correlating with Bitcoin’s recent price stagnation near key support levels.

Lastly, macroeconomic uncertainties, including rising treasury yields and a stronger dollar, are pushing capital out of risk-on crypto markets.

The sharp drop in USDT supply underscored shifting sentiment, suggesting the market may be recalibrating amid these headwinds rather than experiencing a temporary slowdown.

Bitcoin price action amid USDT supply decline

The chart highlighted Bitcoin’s [BTC] struggle to maintain stability as USDT’s supply contracts. Bitcoin’s price has hovered around $94,900, with declining volume signaling reduced buying pressure.

The RSI at 45.44 suggested a bearish

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Author: Samantha LKM