USDT Market Cap Growth Turns Negative After 2 Years: What Does it Signal For The Mid Term?

Tether's USDT stablecoin saw its market cap growth turn negative in early February 2026, marking the first decline in two years. This shift signals a contraction in capital flow into the stablecoin and raises questions about the broader crypto market's health. Analysts suggest that the negative trend may indicate a weak buying environment and a potential bear market phase.

USDT has historically acted as a proxy for investor liquidity in the crypto market. When the 60-day average USDT market cap growth becomes negative, it often correlates with Bitcoin forming local bottoms or consolidating for extended periods. The latest negative trend aligns with patterns observed in 2023 and could persist for about two months.

Tether has been actively removing USDT from circulation through large-scale burns. In early February, the company burned 3.5 billion USDT, and 3 billion USDT in January. This reflects increased redemptions as investors convert the stablecoin back into fiat currency. Tether maintains the 1:1 USDT peg by retiring burned tokens from circulation.

Why Did This Happen?

The decline in USDT's market cap follows a period of strong growth in 2025. In Q4 2025, the stablecoin reached a record $187.3 billion market cap despite a broader crypto market downturn. It added 35.2 million users, bringing the total to 534.5 million, and processed $4.4 trillion in quarterly transfer volume.

Tether's reserves also expanded during this period. By Q4 2025, its total reserves hit $192.9 billion, including $141.6 billion in U.S. Treasuries, 96,184 Bitcoin, and 127.5 metric tons of gold. This diversification has helped stabilize USDT and support rebounds during market downturns.

How Did Markets React?

The recent negative USDT market cap trend has raised concerns among traders and analysts. Capital exiting the stablecoin suggests reduced demand for crypto-related liquidity, which may weaken support levels for Bitcoin and other digital assets. According to data, the broader crypto market has also seen a bearish correlation with Bitcoin, amplifying concerns about a prolonged downturn. Liquidation events have reached $775 million in early 2026, further highlighting the fragile market conditions.

Tether's market cap has dropped from over $187 billion to $184.3 billion since early January 2026. This decline is primarily attributed to the company's large-scale burn activities, which reflect investor caution and reduced stablecoin demand.

What Are Analysts Watching Next?

Analysts are closely monitoring how long the negative USDT market cap trend will last and whether it will trigger a deeper correction in Bitcoin. Historically, similar periods have lasted about two months, with Bitcoin consolidating before a potential rebound.

Tether's recent initiatives may also influence future market dynamics. The company has launched USAT, a stablecoin compliant with the GENIUS Act, and expanded into emerging markets through partnerships like Opera's MiniPay wallet. These moves aim to enhance liquidity and adoption in the U.S. and global markets.

Tether is also investing in gold-backed assets to diversify its reserves. In early 2026, the company invested $150 million in Gold.com, acquiring a 12% stake. This partnership allows users to buy real physical gold using USDT or USAT. Tether's XAUT token, which is backed 1:1 by real gold, now controls more than 60% of the tokenized gold market.

The broader crypto market remains under pressure, with USDT's market cap decline serving as a barometer for investor sentiment. While Tether's reserves offer a buffer against volatility, the overall market environment remains uncertain. Investors are advised to monitor both stablecoin activity and macroeconomic developments for potential signals of a market turnaround.