While the recent market capitalization growth of stablecoins is encouraging, the growing dominance of Tie USDT
-0.06%
raises concerns, according to JPMorgan.
โTether is most at risk due to its lack of regulatory compliance and transparency,โ JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a report Thursday. โTherefore, we consider the increasing concentration in Tether over the past year to be negative for the stablecoin universe and the broader crypto ecosystem.โ
Stablecoin issuers face regulatory risks around the world, analysts said. In the United States, the approval of the Clarity Law for the Payment of Stable Currencies It is awaiting approval by Congress. Meanwhile, in Europe, a partial implementation of the Cryptoasset Markets (MiCA) regulation is expected in June of this year. Therefore, according to analysts, stablecoin issuers that strictly adhere to existing regulations will benefit from the impending regulatory scrutiny and potentially gain market share.
โI am happy to read that JPMorgan recognizes the importance of Tether and the stablecoin technology created by our company,โ Tether CEO Paolo Ardoino told The Block. "But I find the talk about concentration coming from JPMorgan, the largest bank in the world, a bit hypocritical."
"Tether USDT's success is driven by its financial reliability, strong reserves and its commitment to emerging markets and developing countries, where entire communities are using USDT as a lifeline to defend their families from high inflation and devaluation of its national currency," added Ardoino.
JPMorgan on USDC
USDC
-0.02%
stablecoin, recently confidential presented for public trading in the US. This move suggests Circle's intention to expand internationally and proactively prepare for upcoming stablecoin regulations, according to JPMorgan analysts.
Stablecoins act as a link between traditional finance and the world of cryptocurrencies, functioning like โcashโ in cryptocurrencies, analysts said. Its expansion means more money entering cryptocurrencies from traditional finance, more cash circulating in the crypto space and an increase in collateral, making the crypto financial system more stable, they added.
However, TieAccording to analysts, the growing market share and regulatory uncertainties represent a disadvantage for the market.
Atar said on Wednesday which achieved a record net profit of $2.9 billion in the fourth quarter and established an unprecedented increase in excess reserves backing its USDT tokens in circulation.
VC Cryptocurrency Funding
Apart from stablecoins, analysts said that venture capital funding is the other major source of capital for the crypto ecosystem. However, crypto financing has declined again in December 2023 and January 2024 after showing improvement last November. "This likely reflects the capital constraints experienced by venture capital firms over the past two years as interest rates have risen and project valuations have fallen, making exits more difficult," the researchers said. analysts.
Crypto VC firms are now more careful in allocating capital, preferring mature projects and those focused on web3 infrastructure, analysts said. They also noted that the growing demand for AI has driven investment away from blockchain and crypto projects.
(Updates with comment from Tether CEO Paolo Ardoino.)
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