JPMorgan: Loss of confidence in Tether could cause a liquidity shock in the Bitcoin market
The risk of a "sudden loss of confidence" in the stablecoin Tether threatens Bitcoin, JPMorgan analysts say. On Thursday, they unveiled an 86-page report on cryptocurrency, featuring input from JPMorgan's global research head Joyce Chang.
"The sudden loss of confidence in the USDT is likely to cause a massive liquidity shock in the bitcoin markets, which could lose access to the largest supply and demand pools," the authors argue.
Analysts estimate that 50-60% of Bitcoin transactions since 2019 are paired with USDT. From this perspective, USDT carries a tail risk for cryptocurrency, "clearly having nothing like deposit insurance." Analysts note that Tether insists on backing USDT with traditional currencies and its equivalents, "but is known for not providing an independent audit and has stated in court filings that it should not support full collateral."
“So, should any issues arise that could affect the willingness or ability of domestic and foreign investors to use USDT, the most likely scenario would be a massive liquidity shock for the broader cryptocurrency market,” the report said.
Overall, JPMorgan analysts call Bitcoin a "minor" phenomenon in the economy, but recognize its role as an "alternative" currency. At the same time, they question the benefits of diversifying portfolios with cryptocurrencies.
"Crypto assets remain one of the worst hedges against large stock market declines with questionable diversification benefits when their prices substantially exceed production value, while correlations with cyclical assets rise as mass distribution increases," the report said.
The authors expect bitcoin to continue to compete with gold as capital flows towards a generation of millennials who prefer digital gold to traditional gold. Commenting on Tesla's recent $ 1.5 billion investment in bitcoin, JPMorgan reverted to their earlier announcement that the cryptocurrency is unlikely to become an important part of the portfolios of other large companies.