An important measure of how healthy the crypto market in front of it is the market for stablecoins. If stablecoins account for a larger share of the market than before, that generally means the market is close to a bottom. But the ratio does not see a prosperous time for crypto, warns JPMorgan.
Shrinking stablecoins bad for crypto
Most stablecoins have contracted significantly in value since the 2022 bear market. In fact, some of these tokens have completely or almost completely disappeared from the market, including Paxos’ and Binance’s BUSD. This token is already shrunk by 76% after the SEC banned the coin from being issued. Even the market value of Circle’s USD Coin (USDC) has nearly halved, according to data from CoinGecko. Meanwhile, the total value of all USDT has just grown to almost a record.
If stablecoins shrink, the liquidity of the market as a whole decreases. Many exchanges use stablecoins in trading pairs with other coins. In theory, this means that volatile cryptos can also fall further in value. This type of coins currently has a total market value of more than 130 billion dollars.
JP Morgan worried about US debt, regulation
Last Thursday, researchers wrote from J.P. Morgan led by Nikolaos Panigirtzoglou about the shrinkage. CoinDesk says he has read the report. The US investment bank claims that the problems with crypto regulation in the United States, the problems with the banking system and the aftershocks of the fall of FTX are having a negative effect on stablecoins.
The huge US national debt also plays an important role, according to the bank. Interest rates in the US are so high that the government is barely able to pay its own debt. But stablecoins generally have this debt as collateral. If these bonds were to fall in value too much, these stablecoins could therefore lose their value.