Recovery of the crypto asset market cannot be expected until the contraction of stablecoins stops: JP Morgan | coindesk JAPAN | Coindesk Japan

The world of stablecoins continues to shrink, and until this stops, there can be no sustained recovery in cryptocurrency prices, JPMorgan said in a May 18 research report.

A stablecoin is a type of crypto asset pegged to another asset such as the US dollar.

JP Morgan analysts, led by Nikolaos Panigirtzoglou, said “headwinds such as increased crackdowns on US crypto assets, bank network concerns over the crypto ecosystem, and the aftermath of last year’s FTX collapse have diminished. It weighs heavily on the world of stablecoins that continue to grow.”

Despite a strong start to the year, crypto asset prices have been sluggish over the past month, with the industry’s total market capitalization dropping from $1.26 trillion on April 13 to $1.89 trillion. It has decreased to US dollars (approximately 150.65 trillion yen).

Tether (USDT) has given way to USD Coin (USDC), which has lost its share among stablecoins, according to the report, and tightening U.S. regulations continue to hurt USD Coin.

Tether’s dominance has also been further enhanced by the U.S. Securities and Exchange Commission’s (SEC) ban on rival stablecoin Binance USD (BUSD), the report states.

According to JP Morgan, the U.S. debt ceiling has put a spotlight on major stablecoin reserves and U.S. Treasury holdings.

“The share of U.S. Treasuries in the reserves of major stablecoins has increased over time, making it a major challenge for stablecoins to maintain their pegs in the adverse scenario of a US technical default,” the analyst said. It suggests that,” he wrote.

The problem facing stablecoins in such an unfavorable scenario is that cryptoassets provide access to trading and decentralized finance (DeFi) and serve as a source of collateral. It will affect the entire ecosystem, the report adds.

JP Morgan notes that Tether has tried to diversify its stablecoin reserves to ease debt ceiling issues.

｜Translation: coindesk JAPAN
｜Editing: Toshihiko Inoue
｜Image: Shutterstock
｜Original: Crypto Market Recovery Unlikely Until Stablecoin Universe Stops Shrinking: JPMorgan