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Multiple on-chain analytics show that the leading stablecoin globally (USDT) is under intense selling pressure following the widespread decline in the crypto market. While the latest Coinmarketcap data indicates that the USDT price is $0.9832, the same data revealed that the USDT price plunged to a 5-year low yesterday, dipping by up to 4.8% to trade at $0.951.

It is strange that the value of a USD pegged stablecoin is dipping, given that it is required to maintain the same value as the fiat USD. The decline in the value of USDT has made many investors more observant and cautious following the drastic dip of the TerraUSD stablecoin (UST), which lost its USD peg earlier in the week.

The total market cap of the crypto market has declined to nearly $900B as extreme consolidation in this market hasn’t stopped since its inception this past week. USDT is the most used token for crypto-related transactions, it is the biggest stablecoin, and its overall evaluation makes it the third-largest digital asset after BTC and ETH. Hence, many crypto traders and holders would be affected if it lost its USD peg.

The Cause Of The USDT De-Pegging

Many crypto investors can no longer bear the ongoing downturn in the crypto market. Hence, they are withdrawing their funds from the crypto market. Many crypto holders whose holdings are majorly domiciled in USDT have likely started trading their holdings for the USD to avoid incurring further losses.

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Some USDT holders are also buying and holding USDT alternatives, especially BUSD and USDC. Hence, those tokens have surged in price. BUSD has gained 1.28%, while USDC has gained 0.35% in the last 24 hours, according to the latest Coinmarketcap data.

While speaking about the matter, USDT CTO, Paolo Ardoiono, stated that “investors need not worry.” He added that the token had redeemed $300m worth of USD in the last day without any significant decline.

Doubts Remain Over Tether’s Reserves

One of the companies that offer a huge reserve pool for USDT, Bitfinex, has claimed that about 85% of USDT’s reserve pool consists of cash equivalents. Nevertheless, many industry experts have often criticized tether over the lack of transparency concerning its reserves.

Many investors may also be liquidating their USDT holdings over a lack of conviction in Bitfinex’s ability to back the token effectively, especially if USDT finds itself in a similar situation as the UST.

The de-pegging and massive decline in UST’s value have made many investors wary about investing in stablecoins and are selling their stablecoin holdings. They are no longer convinced that they are effectively backed to be pegged 1:1 with the fiat USD. 

This might be the reason for the intense USDT selloffs. Various US financial watchdogs and Janet Yellen (the Secretary to the Treasury) have started taking advantage of UST’s crash to criticize the stablecoin industry and the wider crypto market heavily. The real question remains, how long before USDT also loses its USD peg?

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Alicia Maher

By Alicia Maher

Alicia Maher is an accomplished news writer with a passion for storytelling. With years of experience in the field, she is skilled at delivering accurate, engaging, and insightful news coverage to her audience.