JPMorgan Raises Alarm over Tether’s approaching $100 Billion in Circulation

2024-02-19, 09:42

Tether’s market capitalization may soon surpass $100 billion.

JPMorgan has raised concern over Tether USDT’s rising market dominance.

The EU may soon adopt MiCA while the United States congress may approve the Clarity for Payment Stablecoins Act which governs Stablecoins.

Keywords: Stablecoin market, USDT and Tether, crypto eco, hold crypto, crypto holders, buy crypto, buy Tether, buy USDT, USDT token

Introduction

Stablecoins are one of the most sought after cryptocurrencies on the market as they store value for a long period. Tether USD (USDT) is the leading cryptocurrency with a market capitalization of close to $100 billion.

In this analysis, we look at the possible negative effects of the increased growth of Tether USDT. We will also assess the views of JPMorgan on Tether expansion and dominance in the stablecoin and DeFi markets.

JPMorgan Highlights Risks in Tether Dominance and Regulatory Challenges

Recently JPMorgan Chase & Co raised alarm on the increasing growth of Tether USDT as it targets $100 billion in circulation. It is the first time that USDT, the number one Stablecoin, is on the cusp of surpassing $100 billion in market capitalization.

The Stablecoin experienced an astronomical growth in the last two years due to the increased demand for Stablecoins. For instance, within the last two weeks of January Tether minted USDT tokens valued at $1 billion. Overall, it added $13 billion to its market capitalization during the last four months.

Stablecoins are an integral part of the crypto eco as they are less volatile than the other crypto assets like Bitcoin and ETH. As such, most crypto holders who want to maintain the value of digital assets prefer to own Stablecoins, including the USDT token.

As the leading Stablecoin on the market USDT has several competitive advantages. Individuals who want to hold crypto can buy USDT on various exchanges such as Gate.io and Binance. Again, as USDT exists on different networks it is convenient for investors to buy Tether and use it.

Although, USDT and Tether growth is a positive development in the DeFi sphere that may also pose certain risks. In its publication, Bloomberg highlight JPMorgan’s concerns over the expansion of USDT.

Tether’s lack of regulatory compliance and transparency create risks for the USDT token users. To this effect, JPMorgan analysts, led by Nikolaos Panigirtzoglou, said, “Tether is mostly at risk given its lack of regulatory compliance and transparency. We, therefore, view the increasing concentration in Tether over the past year as negative for the Stablecoin universe and the crypto eco more broadly.”

The analysts also said that there is no certainty whether or not Tether keeps the right amount of reserves to meet redemption requirements at any time. At the moment, Tether has not published a comprehensive audit of its assets and liabilities.

Instead, BDO Italia, an accounting firm, compiles its financial attestations from time to time. Based on the latest attestation, as of 31 December 2023 Tether has assets worth $97 billion and liabilities totalling $92 billion.

However, Tether recently said that its USDT token creates much value for the crypto market as a whole. Pertaining to this, Coingape quotes Paolo Ardoino, a Tether utive, as saying, “Tether’s market domination may be a ‘negative’ for competitors including those in the banking industry wishing for similar success but it’s never been a negative for the markets that need us the most. We’ve always worked closely with global regulators to educate them on the technology and provide guidance on how they must think about it.”

It is worthwhile to note that the recent expansion of USDT and Tether is due to USDC’s continued loss of market share as a result of various reasons, including the United States’ regulatory crackdown on cryptocurrency. The next graph makes a comparison between the USDT Market and the USDC one.

Tether Market Dominance – JPMorgan on CoinMarketCap

As the picture shows, as Tether market dominance has been increasing, that of USDC has been decreasing.

Tether CEO Defends USDT’s Market Leadership

Paolo Ardoino, Tether’s CEO, is positive about the USDT’s future, irrespective of the changing regulatory environment. He maintained that USDT’s rising dominance does not pose any risks in the market but is essential to the users that rely on it.

Concerning this, Ardoino told The Block that Tether and USDT have the attributes required to survive in the current crypto eco. Specifically he said, “The success of Tether USDT is driven by its financial reliability, strong reserves and its commitment towards emerging markets and developing countries, in which entire communities are using USDT as a lifeline to defend their families from high inflation and the duation of their national currency.”

He added, “I’m happy to read that JPMorgan acknowledges the importance of Tether and the Stablecoin technology created by our company. But it seems to me a bit hypocritical to talk about concentration coming from JPMorgan, the biggest bank in the world.”

Impending US and EU Crypto Regulations Signal Major Shifts in Stablecoin Landscape

The emerging global regulatory environment threatens Stablecoins and other crypto assets. For example, the Clarity for Payment Stablecoins Act is waiting for the approval of the US Congress. If approved, it will establish various requirements for Stablecoins like USDT.

According to the CRS report the Clarity for Payment Stablecoins Act will require all Stablecoin issuers to “hold one dollar of permitted reserves per dollars’ worth of Stablecoin,” and “prohibited from using reserves except for the purpose of creating liquidity for redemptions.”

In addition, the regulators will license stable coins that fulfil three principles, stated as follows: “The applicant’s ability to meet “baseline” requirements; the “general character and fitness of the management of the applicant”; and associated consumer risks and benefits.”

In Europe the Markets in Crypto Assets (MiCA) regulation, if approved, will govern the licensing and operations of Stablecoins in member states. For example, MiCA will ban algorithmic Stablecoins and require fiat-backed ones to have 1:1 reserves.

In addition, this piece of crypto regulation sets certain procedures the issuers should implement. For instance, the Stablecoin issuers may need to report their reserves to people who want to buy crypto in the form of Stablecoins.

MiCA is expected to become effective any time after June this year. Therefore, Stablecoin issuers like Tether should be geared for these and other pieces of crypto laws. This is because if they fail to comply with the new regulations they may face closure or be charged hefty fines.

Conclusion

In the past four months Tether increased the market capitalization of USDT by about $13 billion, resulting in a remarkable rise in its market dominance. Due to that, JPMorgan analysts have raised alarm on Tether market dominance in the face of the evolving regulatory landscape. In the meantime, the United States Congress may approve the Clarity for Payment Stablecoins Act while in the European Union’s MiCA may come into effect around mid-2024.

What are stablecoins?

A stablecoin is a cryptocurrency that is pegged against the value of an asset or fiat currency. USDT, the number one Stablecoin, is pegged against the United States dollar.

What is Tether?

Tether is a blockchain based platform which facilitates the use of fiat currency in a digital manner. Generally, however, some people define Tether as a Stablecoin that is pegged against the value of the United States dollar.

Tether vs. USDT - what is the difference?

Tether is a blockchain based platform that facilitates the use of fiat currency in digital form. On the other hand, USDT is a Stablecoin which is pegged against the US dollar.

Which are the most popular stablecoins?

USDT, DAI, Binance USD, USDC, TrueUSD and Pax Dollar are the most popular Stablecoins. Although most of these Stablecoins are pegged against fiat currency some of them base their values on assets like gold. Read also: What is pegging in crypto

Who owns USDT?

Tether Limited, founded by iFinex - a Hong Kong-registered company - owns USDT, a fiat backed Stablecoin. Several entrepreneurs who include Jean-Louis van Der Velde, Stuart Hoegner, Christopher Harborne, Chakrit Sakunkrit and Giancarlo Devasini founded Tether Limited and thus own USDT.

Is USDT backed by real money?

USDT is backed by the United States dollar. What this means is that Tether Limited keeps a reserve of US dollars equivalent to the number of USDT tokens it has at any time.

Is it safe to hold USDT?

It is very safe to hold USDT since it maintains the value of the United States dollars in most cases. However, it may depeg for a short time if some external factors affect it. It is also susceptible to other risks like hacking.

Is USDT trading platform safe?

USDT is traded on many crypto exchanges which have different security standards. Some exchanges like Gate.io, Coinbase and Binance are known for their high security standards.

Where is the safest place to hold USDT?

People can safely store their USDT tokens in cold wallets as well as secure cryptocurrency exchanges. Gate.io is a leading crypto exchange that maintains high security standards.

Author: Mashell C., Gate.io Researcher

*This article represents only the views of the researcher and does not constitute any investment suggestions.

*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.