The growth of stablecoin's market cap and circulating supply has been one of the best indicators for attaining a general pulse on how participants in the market are feeling during bullish and bearish times.

Monitoring the Tether (USDT) treasury for large issuances was a common tactic used by analysts and traders to position themselves for a possible pump in the price of Bitcoin (BTC) and altcoins and previously this has been a good source of alpha for those willing to take a risk.

USDT circulating supply. Source: CryptoQuant

A closer look at the data provided by CryptoQuant indicates that a seismic shift in the makeup of the stablecoin market may be taking shape as USDT issuance has begun to stagnate while the circulating supply of competitors like USD Coin (USDC) has resumed its uptrend over the past week.

When looking at the exchange inflows and reserves of each individual stablecoin, there has actually been an increase in USDC deposited onto exchanges while the amount of USDT has declined, leading to the plateau seen in total stablecoin reserves held on exchanges.

USDC circulating supply. Source: CryptoQuant

This is significant because Tether printing has historically been the impetus for major market moves, but its continued legal challenges and questions regarding assets held in reserve have made holding the token more of a liability as regulators increasingly crackdown on the wild west nature of the cryptocurrency market.

All stablecoin reserves on exchanges. Source: CryptoQuant

As seen on the chart above, while the circulating supply of stablecoins was on a steady rise through the first five months of 2021 and accelerated somewhat as the market sold-off in May, issuance came to a standstill at the beginning of June as the reality set in that a bearish trend had taken over the market.

There was also a spike in the stablecoin inflow transaction count that occurred on May 29, just as the stablecoin supply was peaking, which was followed by a brief increase in the price of BTC to $40,000 before another wave of selling dropped the price back below $34,000 and stomped out any building momentum.

All stablecoins inflow transaction count to exchanges. Source: CryptoQuant

Since then, stablecoin inflows to exchanges have fallen to the lowest level since October 2020. The Crypto Fear and Greed Index also registers "extreme fear", backing up the argument that there is a lack of demand from retail and institutional level investors.

Cryptocurrency fear and greed index. Source: Alternative.me

Stablecoin inflows rise as BTC approaches $30,000

While the month of June had seen a dry spell of stablecoin deposits onto exchanges, the drought may have come to an end on June 21 as a drop in the price of BTC below $33,000 appears to have enticed stablecoin holders to consider buying the dip.

Further evidence of activity for USDC has been provided by Whale Alert, a well-known Twitter bot that posted numerous updates about USDC minting and transfers on June 21 as the crypto market experienced another round of selling.

Typically, stablecoin inflows are viewed as bullish, a recent newsletter from CryptoQuant offered a word of caution because similar spikes in stablecoin issuance in the past were followed by a prolonged period of sideways trading or price declines.

All stablecoin issuance events. Source: CryptoQuant

CryptoQuant said:

“After the bottom of the last bear market (2018-2019) we saw a steady rise in issuance events. At the top (June 28, 2019) of this bullish period there was a large issuance event (the two big spikes in July-August 2019 are due to USDT ETH issuance). It looks like the same is happening right now.”

Related: Institutional selling of crypto reaches longest streak since Feb 2018

This data serves as a warning that not all stablecoin issuance is a predictor of Bitcoin price rising because there are a number of factors that could account for mintings, such as institutional investors buying USDCfor a future purchase, or even altcoin and DeFi protocols preparing to integrate USDC pairs.

In the long run, this shift has the potential to be beneficial for the crypto sector as audited projects like USDC are deemed more legitimate in the eyes of governments and regulators, but the sheer size of USDT's $62.67 billion market cap and its ubiquity across crypto exchanges means that any attempt to de-Tether will likely bring pain to the market.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.