The combined market capitalization of the two largest stablecoins, tether (USDT) and USD coin (USDC), has begun to fall again, a sign that quantitative tightening in the crypto financial system has resumed, Morgan Stanley (MS) said in a research report Tuesday.

The decline in market cap of the two stablecoins, which paused in mid-August, has resumed, the report said. The market cap is now about 10% lower than its April peak.

Availability and demand for stablecoins is an indicator of cryptocurrency market liquidity and the demand for leverage, the bank said. When market capitalization falls it is the crypto equivalent of quantitative tightening. That's the name for when central banks like the U.S. Federal Reserve shrink their balance sheets to remove liquidity from the financial system, seeking to prevent the economy from overheating.

Stablecoins are a type of cryptocurrency whose value is pegged to another asset, such as the U.S. dollar or gold. They are foundational to the crypto ecosystem, so a reduced supply does suggest tighter financial conditions in the industry n similar to central bank quantitative tightening that shrinks the supply of money in the non-crypto economy.

The bank notes that changes in USDCrs market capitalization appear to be leading bitcoinrs (BTC) price by two months, and says this may be because the stablecoin is used by crypto institutions for borrowing to buy other coins.

Morgan Stanley says it has seen little evidence of leverage building up again in the decentralized finance (DeFi) ecosystem. DeFi is an umbrella term used for lending, trading and other financial activities carried out on a blockchain without the use of traditional intermediaries.

The crypto market remains highly responsive to expectations for central bank tightening, in particular the actions of the U.S. Federal Reserve, the note added.

Read more: Morgan Stanley Says Tightening in the Crypto Market Has Paused