Tether's USDT Supply Declines Sharply as Market Liquidity Rotates

Tether's USDt (USDT) is experiencing a significant decline in circulating supply, with data from Artemis Analytics showing a decrease of around $1.5 billion in February. This marks the largest monthly drop since December 2022, when USDT supply fell by approximately $2 billion following the FTX bankruptcy.

The reduction in USDT supply raises questions about liquidity levels in the crypto market, particularly during times of heightened uncertainty. However, the overall stablecoin market has not contracted, with a 2.33% increase in total stablecoin market capitalization to $307 billion in February.

Large investors appear to be reducing their exposure to USDT, while new wallets are accumulating the stablecoin, indicating reallocation rather than outright capital flight. This divergence in flows suggests that liquidity is rotating within the market, rather than a systemic loss of confidence in stablecoins.