According to analysts at JPMorgan, the bitcoin market could experience severe liquidity shock if traders lose confidence in tether (USDT) – a stable currency widely used to finance cryptocurrency purchases.
‘If problems arise that could affect the willingness or ability of both domestic and foreign investors to use USDT, the likely outcome is a serious liquidity shock for the broader cryptocurrency market, which could be exacerbated by its unequal impact on HFT. [high-frequency trading]JPMorgan analysts mention in an 86-page report published Thursday.
The value of Tether is pegged to the US dollar on a 1: 1 basis, and the stable currency is backed by reserves, including traditional currency and cash equivalents, and may from time to time include other assets and receivables from Tether loans. issue was made. company to third parties, which may include affiliated entities, ”according to the company’s official website.
USDT’s market capitalization has increased from $ 4 billion to more than $ 33 billion over the past twelve months – a sign of its increasing use as a financing currency. According to data collected by asset manager NYDIG and quoted by JPMorgan analysts, about 50% -60% of bitcoin has traded for USDT since 2019.
Consequently, a sudden loss of confidence in tether could eventually trigger the crypto version of a banking contest, destabilize the currency exchange, and cause a panic drop in the bitcoin price. A bank run occurs when many depositors withdraw their money at the same time due to concerns about the bank’s solvency.
Tether, the company behind the tether stablecoin, has long been criticized for its lack of transparency about reserves and its way of issuing new coins. So far, however, the crypto market has not paid much attention to such concerns.
Part of the lack of attention may stem from the fact that the dollar-based transactions were on average larger than USDT-based transactions during the price increases over the past 12 months. According to Kaiko research. As such, the risk of a major price crash on the possible loss of confidence in tether seems low.
However, the JPMorgan analysts said they believe bitcoin is here to stay as an alternative cryptocurrency.
“Bitcoin’s competition with gold as an ‘alternative currency’ is likely to continue as millennials become a more important part of investors’ universe and given their preference for ‘digital gold’ over traditional gold,” analysts said. $ 146,000 is dependent of the fact that the high volatility in the price coincides with the volatility of gold, which is a perennial process.