© Reuters
Investing.com – The stablecoin universe continues to shrink, and until that stops, a sustained recovery in cryptocurrency prices is unlikely, JPMorgan (NYSE:) said in a research report on Thursday.
“Headwinds from the U.S. regulatory crackdown on cryptocurrencies, instability in banking networks for the cryptocurrency ecosystem, and repercussions from the collapse of FTX last year are weighing on the stablecoin universe. which continues to shrink,” analysts led by Nikolaos Panigirtzoglou wrote.
Despite a positive start to the year, cryptocurrency prices have fallen over the past month, with the sector’s overall market capitalization falling from $1.26 trillion on April 13 to $1.089 trillion.
The US regulatory crackdown continues to weigh on (USDC), which has lost stablecoin market share to (USDT), according to the report.
Tether’s dominance was reinforced by the U.S. Securities and Exchange Commission’s (SEC) ban on rival stablecoin Binance USD (BUSD), according to the note.
According to JPMorgan, the issue of the US debt ceiling has drawn attention to the reserves of major stablecoins and their holdings of US Treasury securities.
“The share of US Treasury securities in the reserves of major stablecoins has increased over time, implying a great challenge for stablecoins to maintain their pegs in an adverse US technical default scenario,” write the analysts.
Any problems stablecoins experience in such a scenario would impact the entire crypto ecosystem given the role these cryptocurrencies play in providing access to trading and decentralized finance (DeFi), and as as a source of collateral, the report adds.