Crypto Market Recovery Unlikely Until Stablecoin Universe Stops Shrinking: JPMorgan

The stablecoin universe continues to shrink, and until this stops, a sustained recovery in crypto prices is unlikely, JPMorgan (JPM) said in a research report Thursday.

A stablecoin is a type of cryptocurrency that is pegged to another asset, such as the U.S. dollar.

“Headwinds from the U.S. regulatory crackdown on crypto, the unsettling of banking networks for the crypto ecosystem and the reverberations from last year’s FTX collapse are weighing on the stablecoin universe which continues to shrink,” analysts led by Nikolaos Panigirtzoglou wrote.

Despite a positive start to the year, cryptocurrency prices have slumped in the past month with the industry’s overall market cap dropping from $1.26 trillion on April 13 to $1.089 trillion.

The U.S. regulatory clampdown continues to take its toll on USD Coin (USDC), which has experienced a loss of stablecoin market share at the expense of Tether (USDT), the report said.

Tether’s dominance has been further boosted by the U.S. Securities and Exchange Commission (SEC) ban on rival stablecoin Binance USD (BUSD), the note said.

JPMorgan says the U.S. debt ceiling issue drew attention to the reserves of major stablecoins and their holdings of U.S. Treasury securities.

“The share of U.S. Treasury securities in the reserves of major stablecoins has been increasing over time, implying a big challenge by stablecoins to maintain their pegs in an adverse scenario of a U.S. technical default,” the analysts wrote.

Interested  Bitcoin Price May Hit $100K by Year-End, Standard Chartered Bank Says

Any issues faced by stablecoins in such an adverse scenario would impact the whole crypto ecosystem given the role these cryptocurrencies play in providing access to trading and decentralized finance (DeFi), and as a source of collateral, the report added.

The bank notes that Tether has sought to diversify its stablecoin reserves to protect against the U.S. debt ceiling issue.

Recommended for you:

  • Republicans Plan to Reintroduce Legislation to Prevent Crypto Restrictions in 401(k): Politico
  • Crypto Investors Can Rely on ‘Frankly Nothing’ in Current Regulatory Environment, Says Former FDIC Official
  • Silvergate Stock Tanks on Report of DOJ Probe Tied to FTX, Alameda Dealings

Read more: Morgan Stanley: Falling Stablecoin Issuance Is Negative Sign for Crypto Trading

Edited by Oliver Knight.

Comments are closed.