Stablecoin Tether’s Increasing Dominance Is Bad for Crypto Markets, JPMorgan Says

Other stablecoins such as USD Coin may benefit from the coming regulatory crackdown and gain market share, the report said.

AccessTimeIconFeb 5, 2024 at 10:56 a.m. UTC
Updated Feb 6, 2024 at 8:49 a.m. UTC
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The increasing dominance of stablecoin tether (USDT) is bad for the wider crypto ecosystem, JPMorgan (JPM) said in a research report Thursday.

The bank said it views the "increasing concentration in tether over the past year as a negative for the stablecoin universe and the crypto ecosystem more broadly.

Stablecoins are facing regulatory risk across multiple jurisdictions, and “tether is mostly at risk given its lack of regulatory compliance and transparency,” analysts led by Nikolaos Panigirtzoglou wrote.

There is an opportunity for other stablecoins, however, as issuers that have been more aligned with existing regulations could benefit from any resulting crackdown and take market share, the bank said.

USD Coin (USDC), which has filed to sell shares to the public in the U.S., could be one such beneficiary, as it "appears to be looking to expand across jurisdictions and to be proactively preparing for the upcoming stablecoin regulations," the report said.

JPMorgan notes that tether has seen significant growth in both market cap and market share recently, with widespread adoption across centralized crypto exchanges and decentralized finance (DeFi) platforms. Last week, the stablecoin issuer reported a record-breaking $2.85 billion of profit for the previous quarter and said its flagship token has almost reached a $100 billion market capitalization.

The stablecoin has also benefited from the "turbulence" in peers such as USDC and Binance’s BUSD, the report said.

"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," Tether CEO Paolo Ardoino said in an email after this article was published. "In fact, Tether demonstrated more resilience in a black swan event than several major U.S. banks last year ... it seems hypocritical to talk about growing concentration from the biggest bank in the world."

UPDATE (Feb. 6, 08:49 UTC): Adds response from Tether

Edited by Sheldon Reback.

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