The cryptocurrency market has weathered multiple storms over the past year, with Bitcoin shedding more than 50% of its value since last November. Among the most disruptive events was the UST and LUNA collapse—an unexpected black swan that sent shockwaves across the entire digital asset ecosystem. This article dives deep into how the implosion of Terra’s algorithmic stablecoin reshaped confidence in major stablecoins like USDT, USDC, and DAI, while also analyzing key on-chain indicators that may signal a potential Bitcoin market bottom.
We’ll explore the evolving dynamics of stablecoin stability, investor behavior during crises, and data-driven tools to assess long-term market turning points—all grounded in real chain data and market psychology.
What Makes a Stablecoin "Stable"?
Stablecoins are designed to serve as value preservation tools within the volatile crypto ecosystem, pegged 1:1 to fiat currencies like the U.S. dollar. However, their mechanisms for maintaining this peg vary significantly.
The three dominant stablecoins—USDT, USDC, and DAI—each use different models:
- USDT and USDC rely on centralized reserves of cash or cash-equivalent assets.
- DAI is an algorithmic stablecoin governed by smart contracts and backed by over-collateralized crypto assets via the MakerDAO protocol.
When UST broke its dollar peg in May 2025, it didn’t just impact LUNA holders—it triggered panic across the broader stablecoin market. Even Bitcoin saw sharp drawdowns as trust eroded. This event highlighted a critical truth: stablecoins carry systemic risk.
Let’s examine how each major stablecoin responded during this crisis and what their performance reveals about investor sentiment and resilience.
USDT vs. USDC: Centralization Under Pressure
USDT (Tether) is the oldest and most widely used stablecoin. Issued by Tether Ltd., it was originally claimed to be fully backed by USD reserves. Over time, however, concerns grew over reserve transparency—especially after revelations that Tether held high-risk commercial paper and wasn't fully backed.
In response to regulatory scrutiny and past fines, Tether has since transitioned much of its reserves into U.S. Treasuries and now publishes quarterly attestation reports from independent auditors. While not perfect, these steps have improved trust.
During the UST crisis, USDT experienced significant price volatility, briefly dipping below $0.95. Fears spread that institutional actors might be targeting USDT, exploiting panic to trigger a de-peg. Although unconfirmed, the rumor fueled selling pressure.
Despite the turmoil, Tether acted swiftly—defending the peg through transparent communication and reserve management. Ultimately, USDT recovered, proving resilient under stress—but not without shaking investor confidence.
In contrast, USDC (issued by Circle) emerged stronger. Backed by Coinbase—a publicly traded company subject to traditional financial regulations—USDC benefits from higher transparency and regulatory compliance. Its reserves are regularly audited by reputable firms like Grant Thornton.
As uncertainty grew around USDT, investors flocked to USDC as a safer haven. The stablecoin saw both price appreciation above $1.00 and a notable increase in circulating supply, signaling rising demand during times of crisis.
This shift suggests a growing preference for regulated, transparent stablecoins in turbulent markets. If this trend continues, USDC could surpass USDT in market capitalization—marking a pivotal moment in crypto’s evolution toward institutional-grade infrastructure.
DAI: The Decentralized Alternative Tested
DAI, issued by MakerDAO, stands apart as a decentralized, algorithmic stablecoin. Unlike USDT or USDC, DAI isn’t backed by fiat but by over-collateralized crypto assets locked in smart contracts. Its governance token, MKR, plays a crucial role in system stability—used to cover losses when collateral values drop.
During the UST collapse, DAI also faced turbulence. Its price fluctuated outside the $1 peg, and total supply declined as users withdrew funds amid fears of cascading liquidations. This reflected waning confidence in algorithmic models following UST’s failure.
However, DAI demonstrated resilience. The protocol’s risk controls held, and the peg was restored without emergency interventions. Notably, MKR price surged during this period due to increased demand for governance participation and fee payments during vault liquidations.
This outcome underscores an important takeaway: while algorithmic stablecoins are inherently riskier, well-designed systems like MakerDAO can survive extreme stress—especially when compared to poorly collateralized alternatives like UST.
👉 See how decentralized finance protocols respond to market shocks with live analytics.
DAI’s survival may mark a turning point—establishing it as the leading decentralized stablecoin amid growing skepticism toward unbacked algorithms.
Bitcoin Bottom Indicators: Are We Close to a Market Floor?
While stablecoin dynamics reflect short-term sentiment, long-term investors focus on whether Bitcoin has reached its bottom. Historically, certain on-chain metrics have proven reliable in identifying capitulation phases. Here are three key indicators worth watching:
MVRV Z-Score
The MVRV (Market Value to Realized Value) Z-Score measures the statistical deviation between Bitcoin’s current market value and its realized value (average cost basis of all coins).
- A high Z-score (>7) signals overvaluation—often preceding tops.
- A low or negative Z-score (<0) indicates undervaluation—historically aligning with market bottoms.
Recently, the MVRV Z-Score has approached negative territory—the same zone seen before previous bull runs. When market value falls below collective cost basis, long-term holders stop selling, setting the stage for recovery.
Buying during these periods has historically yielded substantial returns within months.
Supply in Profit vs. Loss
This metric tracks the distribution of Bitcoin supply based on whether coins are currently held at a profit or loss.
Typically, the supply in profit (green line) exceeds the supply in loss (red line) during bull markets. But near bottoms, this flips—the red line briefly overtakes green as most holders are underwater.
Crucially, such crossovers are short-lived. Once the red line dips back below green, it often triggers a relief rally driven by reduced selling pressure and renewed accumulation.
After two years of divergence, these lines are now converging again—suggesting we may be nearing a capitulation phase.
Realized Profit/Loss Ratio (RPV Ratio)
The Realized Profit-to-Value (RPV) Ratio measures how much profit is being realized relative to Bitcoin’s total market cap.
When this ratio drops below 0.001%, it means only a tiny fraction of holders are selling at a profit—indicating widespread pessimism and minimal greed.
Historically, such lows have coincided with bear market bottoms. While the RPV ratio doesn’t catch every bottom, its signals are highly reliable when they occur.
Currently, the metric is trending downward—another sign that fear dominates the market and long-term buying opportunities may be emerging.
👉 Track these Bitcoin bottom indicators in real time and stay ahead of market turns.
Frequently Asked Questions (FAQ)
Q: Is USDT still safe after the UST collapse?
A: Yes, USDT weathered the crisis despite temporary de-pegging. With improved reserve transparency and a shift toward U.S. Treasuries, it remains resilient—but carries counterparty risk due to centralization.
Q: Why did USDC gain popularity during the crash?
A: Investors favored USDC for its regulatory compliance, audit transparency, and ties to publicly listed entities like Coinbase—making it a preferred safe haven during uncertainty.
Q: Can DAI survive another market crash?
A: DAI’s robust collateral framework and proven stress resistance suggest it can endure future shocks better than undercollateralized algorithmic coins like UST.
Q: What does a negative MVRV Z-Score mean?
A: It means Bitcoin’s price is below the average cost basis of all existing coins—a strong contrarian signal often followed by rallies.
Q: How reliable are on-chain bottom indicators?
A: While no indicator is foolproof, metrics like MVRV Z-Score and RPV Ratio have strong historical accuracy in identifying major market lows.
Q: Should I buy Bitcoin now based on these signals?
A: These indicators suggest favorable long-term conditions—but timing the exact bottom is impossible. Dollar-cost averaging during low-conviction phases is a prudent strategy.
Final Thoughts
The UST collapse was more than just a failure of one project—it exposed vulnerabilities across the stablecoin landscape and tested the resilience of decentralized finance. In its aftermath:
- USDC gained trust as a transparent alternative
- USDT proved durable but still faces scrutiny
- DAI emerged as the most credible decentralized option
Meanwhile, on-chain data suggests Bitcoin may be approaching a generational buying opportunity. As fear peaks and selling pressure wanes, metrics like MVRV Z-Score and RPV Ratio flash early warning signs of a potential reversal.
While no one can predict the future, understanding these patterns empowers investors to make informed decisions—not out of panic, but with clarity.
This analysis reflects historical behavior and should not be construed as financial advice.