Rise of crypto market’s quiet giants has big market implications

So-called stablecoins such as Tether or USD Coin track the value of assets including fiat currencies like the U.S. dollar. While those linkages mean they don’t have the spectacular price moves of the likes of Bitcoin and Ether, it’s also helped facilitate their growth into a crucial part of the crypto ecosystem.

As of the middle of Asia’s day on March 17, Tether’s 24-hour volume was $94 billion versus Bitcoin’s $56 billion, according to cryptocurrency data provider CoinGecko. About 55% of all Bitcoin purchases are now conducted with Tether, according to researcher CryptoCompare.

The rapid rise of stablecoins over the past five years or so has also opened up questions about regulation, supervision and oversight, J.P.Morgan Chase & Co.’s Chair of Global Research Joyce Chang said in an interview.

“Future regulation will need to focus on who is permissioned to issue global stablecoins and gain access to the Federal Reserve’s payment system,” said Chang.

Holders could be vulnerable to losses, since stablecoins aren’t considered deposits -- meaning they may not be required to be insured by the kind of deposit guarantee like the U.S. Federal Deposit Insurance Corp. provides, said Chang.

Along with strategists including Josh Younger, Chang warned last month that any issues preventing investors using Tether could result in a liquidity shock across the broader cryptocurrency market. It is performing “classic liquidity transformation” similar to commercial banks without the same strict regulations or deposit insurance, they wrote.

While little public information exists about how Tether is created, it generally trades for around $1 because each coin is supposed to be backed by $1 of fiat money in a bank. Tether Ltd. claims to have reserve assets of cash and equivalents equal to its outstanding liabilities, but has so far not produced an audit. The U.S. Commodity Futures Trading Commission subpoenaed the firm and affiliate stablecoin exchange Bitfinex in December, seeking proof that Tether is backed by a reserve of U.S. dollars, as it claims.

Last month the officials who control Bitfinex agreed to pay a $18.5 million settlement with the New York Attorney General, who said they hid the loss of commingled client and corporate funds and lied about reserves. Tether and Bitfinex settled without admitting or denying any wrongdoing.

Stablecoin usage is expected to expand to many different companies for remittances and payments generally. Tether Ltd.’s market value at the end of 2019 was $4.1 billion. It has since grown to $38.1 billion, according to Coinmarketcap.com.

According to a March 10 report from The Block Research strategists including Larry Cermak, “Once global frameworks are established, we believe that $1 trillion in annual stablecoin volume will only be the beginning.”

By Joanna Ossinger