After the outbreak of the US banking crisis, some stablecoins were slaughtered. USDCoin (USDC), the second largest in the market, even briefly lost parity with the dollar, but that time was enough to erode investor confidence.
Compared to March, the USDC saw its capitalization fall from $43.7 billion to less than $30 today. As for the peak, in June 2022, the drop is almost 50%.
In addition to problems with banks, other stablecoins are also suffering from US regulatory pressure. The most notable example is BinanceUSD (BUSD), whose market cap fell from $23 billion to $5.5 billion in less than six months.
In a report published this Thursday (18), JPMorgan points out that cryptocurrencies will recover their prices only if this shrinkage of stablecoins stops. The quotes are published by CoinDesk.
“The headwinds of US regulatory action against cryptocurrencies, the instability of banking networks for the crypto ecosystem, and the reverberation of last year’s FTX meltdown are weighing on the stablecoin universe, which continues to shrink.”
Currently, Bitcoin is down 8% in the month of May, other cryptocurrencies are following this bearish move.
Tether benefits from the crisis of rivals, but is at zero-zero
While its rivals shrink for their own problems, Tether (USDT) absorbs some of that capital.
In the past six months, capitalization grew by $17 billion, but that was only enough to bring it to zero-zero over the 12-month period. After all, Tether went through its own crisis after the collapse of the stablecoin TerraUSD (UST) in May last year.
In any case, the company reported a profit of $1.5 billion in the first quarter of 2023. Part of it is invested in Bitcoin, Tether announced this week.
US worries over defaults for stablecoins and crypto markets, warns JPMorgan
With interest rates rising, many stablecoins are now cashing in on US Treasuries. However, this worries JPMorgan analysts as there is a risk of default.
“The share of US Treasuries in the reserves of major stablecoins has increased over time, posing a major challenge for stablecoins to maintain parity in an adverse US technical default scenario.”
In other words, besides the crash of banks used by stablecoins and regulatory pressures, investors now have one more reason to suspect that stablecoins are a safe haven.
Since stablecoins play a vital role in the cryptocurrency market, especially as banks cut off direct access to exchanges, any problems with them could wreak havoc on the entire industry, affecting the liquidity of markets.
Source: Live Coins
Barry Siefert is an accomplished journalist and author at The Nation View. He is known for his expertise in the field of cryptocurrency, and has written extensively on the topic. With a background in finance and economics, Barry has a deep understanding of the underlying technology and market forces that drive the crypto industry.
