The recent growth in stablecoin market capitalization is encouraging, but rope USDT
-0.09%
That raises concerns, according to JPMorgan.
“Tether is largely at risk due to its lack of regulatory compliance and transparency,” JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a report Thursday. “We therefore view the increased focus on Tether over the past year as a negative for the stablecoin world and the cryptocurrency ecosystem more broadly.”
Stablecoin issuers face regulatory risks globally, analysts said. In the United States, the Clarity for Payment Stablecoins Act is awaiting approval by Congress. Meanwhile, in Europe, the Cryptocurrency Asset Market (MiCA) regulation is expected to be partially implemented in June this year. Therefore, according to analysts, stablecoin issuers that strictly adhere to existing regulations can benefit from the impending regulatory scrutiny and potentially increase their market share.
“I am delighted to read that JPMorgan has recognized the importance of Tether and the stablecoin technology our company has created,” Tether CEO Paolo Ardoino told The Block. “But the talk about centralization at JPMorgan, the world’s largest bank, seems a bit hypocritical to me.”
“Tether USDT’s success is driven by its financial reliability, strong reserves, and commitment to emerging markets and developing countries. Entire communities use USDT as a lifeline to protect their families from high inflation and national currency devaluation,” said Ardoino. added:
JPMorgan on USDC
Circle, Publisher 
USDC
-0.18%
Stablecoin, recently secretly The move signals Circle’s intention to expand internationally and actively prepare for upcoming stablecoin regulations, according to JPMorgan analysts.
Stablecoins serve as a bridge between the traditional finance and cryptocurrency worlds and function like ‘cash’ in cryptocurrencies, analysts said. Their expansion means more money flowing into cryptocurrencies from traditional finance, more cash circulating in the cryptocurrency space, and increased collateral, making the cryptocurrency financial system more stable, they added.
However, Tether’s growing market share and regulatory uncertainty are having a negative impact on the market, according to analysts.
Tether said Wednesday that it reported net profit of $2.9 billion in the fourth quarter, with excess reserves backing USDT tokens in circulation at a record high.
Cryptocurrency VC Funding
Apart from stablecoins, venture capital funding is another major source of capital for the cryptocurrency ecosystem, analysts said. However, after showing improvement in November of last year, cryptocurrency funds sank again in December 2023 and January 2024. “This likely reflects the capital constraints VC firms have experienced over the past two years as interest rates rise and project valuations fall, making exits more difficult,” the analysts said.
Cryptocurrency VC firms are now more cautious about capital allocation, preferring mature projects and those focused on web3 infrastructure, analysts said. They also noted that growing demand for AI is driving away investments in blockchain and cryptocurrency projects.
(Update with comments from Tether CEO Paolo Ardoino)
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