JPMorgan Says Crypto Market Won’t Recover Until Stablecoin Space Stops Shrinking

A report by JPMorgan (JPM) stated that the crypto market won’t be able to get a sustained recovery if the stablecoin universe continues to shrink. Stablecoin is a kind of cryptocurrency that has its value pegged with another asset, such as the U.S. dollar.

The report highlights how many major issues prevent the stablecoin market from growing. Most notably, it has stated how the U.S. debt ceiling is the major hurdle in recovery. The crypto market hasn’t been seeing much of a movement in the last couple of weeks.

Various Reasons That the Market is Not Recovering

Analysts led by Nikolaos Panigirtzoglou wrote that there is a wide range of reasons the crypto market is still not able to recover from the drastic fall from the market capitalization of $3 billion.

The analysts mentioned how the growing crackdown by the U.S. regulatory on the crypto industry is preventing investors to show confidence in the market. Additionally, the reverberations from last year’s FTX collapse are also preventing the stablecoin universe to recover.

All of this along with the problematic banking networks for the crypto industry is not letting the stablecoin universe reach a stable stage. All these factors are playing a major role in not letting the stablecoins market stabilize, which in turn makes the crypto market’s recovery difficult.

The report also mentioned how the market capitalization of the Tether is only able to grow at the expense of its competitive stablecoins like the USD coin.

U.S. Regulatory Authorities Continue to Clampdown

The crypto industry did have a positive start this year after the crypto winter of 2022. However, the prices of cryptocurrencies have seen a massive decline in the past few months.

As a result, the market capitalization saw a massive fall which dropped to $1.089 trillion from $1.26 trillion on April 13. The primary reason for this drop is that investors losing confidence in this digital asset after the increasing crackdown by the US regulatory authorities.

The report from JPM also stated that the SEC’s crackdown has been the cause behind the massive hit on the USD Coin (USDC). This coin has witnessed a loss of market share for the stablecoin at the expense of Tether.

The report also added that the U.S. Securities and Exchange Commission (SEC)’s ban on the Binance USD (BUSD) stablecoin has also led to the increase in the Tether’s dominance in the market share of the stablecoins.

Debt Ceiling Also a Major Hurdle in Recovery: JP Morgan

JPMorgan also mentioned in its report that the U.S. debt ceiling issue also brought attention to the primary stablecoins’ reserves and their U.S. Treasury securities holdings.

“The major stablecoins have been increasing their share of the U.S. Treasury securities over time. As a result, it means that the stablecoins will find it very difficult to maintain their beg in a negative situation of a U.S. technical default.” according to the analyst.

Any problems that the stablecoins would face in the event of a U.S. technical default are more likely going to impact the entire crypto market. This is primarily due to the stablecoin’s highly important part in providing access to trading and decentralized finance (DeFi).

Not just that, the report also added that the stablecoins are also a source of collateral. Therefore, it can have a significant impact on the overall market in case of an adverse scenario where the U.S. goes into default.

The report by JPM states that Tether is making efforts to diversify the stablecoins reserves in a bid to save itself against the U.S. debt ceiling problem.