JPMorgan Chase: The Growing Dominance of Tether is Detrimental to the Cryptocurrency Space

JPMorgan Chase: The Growing Dominance of Tether is Detrimental to the Cryptocurrency Space

JPMorgan Chase: The Growing Dominance of Tether is Detrimental to the Cryptocurrency Space

Morgan Stanley analysts believe that Tether faces significant risks due to a lack of regulatory compliance and transparency, and its growing dominance is causing concerns. At the same time, analysts mentioned that Tether’s competitor, Circle, seems to be actively preparing for upcoming stablecoin regulations.

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Considering the increasing concentration of Tether as a negative factor
Response from Tether’s CEO
Commenting on recent initiatives by USDC issuer
Crypto venture capitalists are more cautious in capital allocation

Considering the increasing concentration of Tether as a negative factor
According to The Block, JPMorgan believes that despite the encouraging growth of the stablecoin market value, the increasing dominance of Tether is causing concerns.

The analyst team at JPMorgan led by Nikolaos Panigirtzoglou wrote in a report on Thursday (1st):
Analysts stated that stablecoin issuers face regulatory risks globally. In the United States, the Clear Stablecoin Act is awaiting congressional approval. Meanwhile, in Europe, the Markets in Crypto Assets Regulation (MiCA) is expected to be partially implemented in June this year. Therefore, analysts believe that stablecoin issuers who strictly comply with existing regulations will benefit from the upcoming regulatory scrutiny and may gain market share.

Response from Tether’s CEO
In response to JPMorgan’s comments, Tether’s CEO Paolo Ardoino told The Block:
Ardoino added that the success of Tether USDT is due to its financial reliability, strong reserves, and commitment to emerging markets and developing countries. In these regions, the entire community is using USDT as a lifeline to protect their families from high inflation and depreciation of domestic currencies.

Commenting on recent initiatives by USDC issuer
The issuer of the stablecoin USDC, Circle, recently submitted a secret application for a US IPO (Initial Public Offering). JPMorgan analysts stated that this move indicates Circle’s intention to expand into international markets and actively prepare for upcoming stablecoin regulations.

Analysts stated that stablecoins serve as a bridge between traditional finance and the crypto world, acting as “cash” in the crypto field. The expansion of stablecoins means more funds entering the crypto field from traditional finance, increased circulation of cash in this field, and an increase in collateral, making the crypto currency financial system more stable.

However, analysts believe that the continuously growing market share of Tether and regulatory uncertainty pose adverse factors to the market. This week, Tether released its 2023 Q4 attestation report signed by international independent audit firm BDO, which showed a record-breaking net profit of $2.85 billion in the fourth quarter and USDT over-reserves of $5.4 billion.

Crypto venture capitalists are more cautious in capital allocation
In addition to stablecoins, JPMorgan analysts also mentioned that venture capital funds are another major source of funding for the crypto ecosystem. However, after showing improvement in cryptocurrency financing in November last year, it declined again in December 2023 and January 2024. Analysts stated:
Analysts stated that crypto venture companies are now more cautious in capital allocation and are more inclined to choose mature projects and those focused on Web3 infrastructure. They also noted that the growing demand for artificial intelligence (AI) is attracting funds that may have otherwise been invested in blockchain and crypto projects.