Stablecoins at 7.04% dominance – Crash signal or buying opportunity?

February’s record stablecoin inflows signal either a market flight to safety or a setup for a major rebound.

Traders are either hedging in stablecoins or positioning for a market re-entry. Rising stablecoin dominance could signal caution, but stable liquidity suggests potential upside.

Stablecoins are often seen as the market’s canary in a coal mine, and recent data suggests they may be sending a cautionary signal.

USDT and USDC dominance have rebounded off a critical trendline, historically a precursor to market downturns.

Simultaneously, February saw record-breaking net stablecoin inflows to exchanges. So, is capital fleeing risk assets, or is it gearing up for re-entry?

Stablecoin dominance rebounds: A risk-off signal?

Source: X

The recent surge in stablecoin dominance, as shown in the USDT.D + USDC.D chart, suggests a shift in market sentiment.

After testing a long-term trendline, dominance rebounded sharply to 7.04% — a level that has previously coincided with major corrections.

Historically, this signals a move toward safety, as traders park funds in stable assets ahead of potential market downturns.

Source: Alphractal

At the same time, the stablecoin ratio channel, which tracks overbought and oversold conditions, has started retreating from a high point.

In previous cycles, such declines have either marked a reset in risk appetite or signaled liquidity stress. Whether this trend reflects temporary caution or a deeper shift in sentiment remains unclear.

Record stablecoin inflows

February’s net stablecoin inflows reached an all-time high, surpassing previous peaks seen during the May 2021 crash and the FTX collapse in November 2022. This surge suggests two possible market narratives:

The first is risk-off behavior, where traders are hedging against market volatility by shifting into stablecoins. This mirrors past deleveraging events, where investors moved capital into stable assets as a defensive measure.

If stablecoin dominance continues rising alongside inflows, it would indicate a broader flight to safety, potentially increasing downside risk for Bitcoin and altcoins.

Source: IntoTheBlock

The second is liquidity building for re-entry, as inflows are not leaving the market but instead accumulating on exchanges.

Historically, this pattern has preceded periods of renewed buying pressure, with traders holding stablecoins in anticipation of a strategic re-entry.

If this supply remains stable or expands further, it could signal that the market is preparing for a rebound rather than a prolonged downturn.

Preparing for the next move

The stacked stablecoin market cap chart shows a structural uptrend, reinforcing that liquidity remains intact. However, any contraction in USDT or USDC supply could indicate capital flight, reducing market stability.

Source: Alphractal

For now, the data presents a mixed picture: rising stablecoin dominance suggests risk aversion, while record-breaking inflows imply capital is being repositioned rather than exiting entirely.

If stablecoin supply holds firm and dominance stabilizes, a recovery may be on the horizon. However, if dominance continues climbing alongside declining liquidity, the market could face sustained downside pressure.

Take a Survey: Chance to Win $500 USDT

Next: Dogecoin’s cup-and-handle setup can push DOGE to as high as…
Source