Crypto market under pressure: Tether’s dominance signals caution and declining liquidity

The cryptocurrency market is experiencing a prolonged phase of weakness, with four consecutive months of declines and the beginning of a fifth negative month.
The total market capitalization has shrunk to approximately $2.5 trillion, raising questions among investors about when a true recovery might occur. A key indicator to understand the current situation is the Tether dominance (USDT.D), which measures the market share of the leading stablecoin relative to the entire crypto sector.

According to data from TradingView, Tether’s dominance reached 7.4% on February 2, marking the highest level in the past two years. This figure is not just a statistical curiosity, but represents an important signal regarding investors’ strategies and expectations.

The Significance of Tether’s Increasing Dominance

An increase in Tether’s dominance indicates that a growing share of capital is shifting from crypto assets to the stablecoin.
In practice, investors are selling cryptocurrencies to take refuge in USDT, preferring the stability of this dollar-pegged coin rather than risking further losses. This behavior reflects a loss of confidence in the short-term profit prospects of the crypto market.

The TradingView chart reveals an even more significant element: Tether’s dominance has surpassed a historical resistance at 6.5%, while at the same time, the total market capitalization has broken through a major support level downward.
This combination of technical signals brings to mind what happened in 2022, when a similar scenario triggered a bear market that lasted over a year.

According to investor Crypto Tony, “USDT dominance has surged while Bitcoin experienced a dump, but we are far from the top of the range. Another reason why I think Bitcoin hasn’t hit the bottom yet.” Other traders, like Trader Tim, suggest that a potential return of Tether’s dominance to 6.5% could represent an opportunity for short positions, while they do not rule out that dominance could rise to 9.5%. Historically, the 9.5% peak coincided with the market bottom in 2022.

Declining Liquidity: An Obstacle to Recovery

Another factor contributing to the complexity of the situation is the decline in the liquidity of stablecoins on exchanges. According to CryptoQuant data, the average inflow of stablecoins to trading platforms, calculated on a monthly basis, has drastically decreased in recent months.

In October, stablecoin inflows to exchanges averaged $9.7 billion, with as much as $8.8 billion directed to Binance, thus supporting bitcoin’s bull momentum.
However, starting in November, the trend reversed: inflows decreased by $9.6 billion and remained negative by over $4 billion at the beginning of 2026. Binance alone recorded an outflow of $3.1 billion.

According to CryptoQuant analyst, Darkfost, “all together, these dynamics highlight the particularly challenging environment in which bitcoin currently operates, weighed down by a persistent lack of liquidity that has been affecting the market for several months now.”

Investors Move Away from Exchanges

It’s not just a capital rotation from bitcoin and altcoins to stablecoins: investors are also withdrawing stablecoins from exchanges, indicating increasing caution and a reduced risk appetite.
This phenomenon further contributes to reducing available liquidity, making any attempt at a crypto market recovery more challenging.

Analysts emphasize that a trend reversal can only be considered when these indicators — Tether dominance and stablecoin flows — show signs of improvement. Until then, the market remains exposed to selling pressures and persistent uncertainty.

Outlook for the Crypto Market: Caution and Anticipation

The current state of the crypto market is marked by a growing dominance of Tether, a reduction in liquidity, and a general caution among investors. Technical signals and data on stablecoin flows suggest that the market may not have bottomed out yet, and that a sustained recovery could still take some time.

Investors and industry operators will therefore need to closely monitor the trend of Tether’s dominance and stablecoin flows on exchanges to identify any signs of reversal. Only an improvement in these indicators can provide a solid foundation for hoping for a new phase of growth in the cryptocurrency market.