According to JPMorgan, stablecoin market capitalization is expanding again, which is a good sign for liquidity in the crypto market, but it has not yet fully recovered and will face regulatory challenges this year. there is a possibility. Stablecoins expanded by $60 billion between their peak in May 2022 and their low of $122 billion in October 2023. The high came just before the collapse of the Terra network, which sparked an epidemic that spread to other stablecoins and crypto lenders that year. However, the market expanded by $9 billion between October 2023 and January 2024 as investors anticipated the approval of a US spot Bitcoin ETF by the Securities and Exchange Commission. According to JPMorgan analyst Nikolaos Panigirtzoglou, this is a “positive sign” for cryptocurrencies in general. “Stablecoins connect the traditional financial system to the cryptocurrency ecosystem, and by being the equivalent of ‘cash’ in the cryptocurrency ecosystem, they are a ‘lubricant’ and a major source of collateral.” Panigirtzoglou said in a memo Thursday. Stablecoins are cryptocurrencies whose price is fixed to the underlying asset. They are usually fiat currencies (usually the US dollar), but there are also stablecoins that are pegged to commodities or other financial assets. When the market is rising as a positive sign of capital entry, investors expect stablecoin supply to increase, which tends to support prices. Despite Bitcoin rallying an astounding 157% in 2023 and near-ideal conditions for 2024, the crypto market has been suffering from low liquidity since last year. It all started with a regulatory crackdown on stablecoins starting with Binance USD (BUSD) last February. A month later, USD Coin (USDC) was caught up in the Silicon Valley Bank panic, temporarily unpegging it from the US dollar after issuer Circle announced that SVB had $3.3 billion in cash reserves. However, Stablecoins will face regulatory risks going forward, Panigirtsaoglou said. In the US, a major stablecoin bill awaits Congressional approval, while in Europe, partial implementation of the Cryptocurrency Market Regulation (also known as MiCA) is expected to become law this year. Tether (USDT), the largest and most popular stablecoin, has also been widely criticized for a lack of transparency regarding the coin's backing. According to CryptoQuant, the company's market capitalization has increased by nearly 5% since August, also benefiting from the turmoil at rivals USDC and BUSD. “Given the lack of regulatory compliance and transparency, Tether is mostly at risk,” Panigirtsaoglou said. “Therefore, we view the increased concentration on Tether over the past year as negative for the stablecoin world and the broader crypto ecosystem.” He added that USDC, which secretly applied for disclosure, could benefit from any future crackdown. “Stablecoin issuers that have been more in line with existing regulations are likely to benefit from future regulatory crackdowns on stablecoins and gain market share,” he said. “USDC…is considering expanding beyond jurisdictions and appears to be actively preparing for future stablecoin regulation.” USDC's market capitalization has expanded by approximately 8% since August did. —CNBC's Michael Bloom contributed reporting.
