USDT briefly flips Ethereum: A warning sign for the crypto market?

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. 

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. 

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. 

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.