The market capitalization of USD Coin (USDC), a stablecoin issued by U.S.-based payment tech firm Circle, has dropped below $50 billion for the first time since January 2022.
On the weekly chart, USDC's market cap, which reflects the number of U.S. dollar-backed tokens in circulation, fell to $49.39 billion on Sept. 26, down almost 12% from its record high of $55.88 billion, established merely three months ago.
In contrast, the market cap of Tether (USDT), which risked losing its top stablecoin position to USDC in May, crossed above $68 billion on Sept. 26, albeit still down 17.4% from its record high of $82.33 billion in May 2022.
The divergence between USDT and USDC shows investors' renewed preference for the former. Let's take a look at the factors boosting Tether as the top stablecoin.
Binance's USDC suspension
Binance, the world's largest cryptocurrency exchange by volume, announced earlier in September that it would convert its users' USDC balances for its own stablecoin, Binance USD (BUSD). The conversion will commence on Sept. 29 and does not apply to USDT.
The exchange said it wants to "enhance liquidity and capital-efficiency for users" via what appears to be a forced conversion in an increasingly competitive stablecoin sector. As a result, Binance suspended spot, future and margin trading in USDC.
8/ 1. Binance's forced "Auto-conversion" is blatantly monopolistic behavior of a typical FinTech company— Momentum 6 (@Momentum_6) September 21, 2022
They are no better than traditional banks that have the power to freeze or take control of user funds
Where is the decentralized future that #Web3 users were promised?
USDC's market cap has plunged by $9.5 billion since the announcement.
Following Binance's footsteps, the India-based cryptocurrency exchange also stopped deposits of USDC beginning Sept. 26.
Whales ditch USDC after Terra fiasco
The USDC supply help by top 1% addresses (aka whales) has dropped to 88.36% in September from its year-to-date high of 93.84% in February, according to data collected by Glassnode.
Interestingly, the plunge accelerated after Terra, a $40-billion "algorithmic stablecoin" project, collapsed in May, stirring a negative sentiment toward the entire stablecoin industry.
For instance, the total market cap of all stablecoins saw the worst correction in 2022, dropping from a February high of $97.37 billion to $80.65 billion in September, according to CryptoQuant.
Tornado Cash sanctions
The USDC market cap plunge has accelerated after the U.S. Treasury imposed sanctions on crypto mixing service Tornado Cash over money laundering concerns.
Circle responded to the sanctions by freezing all USDC wallets owned by Tornado Cash. The firm also prevented addresses that may be associated with the banned mixing service from using USDC. In contrast, Tether avoided blacklisting Tornado Cash addresses.
Independent market analyst Geralt Davidson treated Circle's response to the Tornado Cash sanction as a cue that holding USDC is riskier compared to its stablecoin rivals.
"People now have realized there is more risk holding USDC, Circle blacklisted all the USDC on Tornado Cash addresses sanctioned by US Treasury," he noted in August 2022, adding:
"USDC seems like the only token being blacklisted, while other ERC-20 tokens were not."
Davidson also treated Tornado Cash as one of the reasons why USDC whales have been dumping the stablecoin in recent months.
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