Tether responds to JPM's questioning of its regulatory dilemma: JPM envies our profit margins

Author: Will Canny, CoinDesk; Compiler: Wuzhu, Golden Finance

Summary

• JPMorgan said in a report that stablecoin regulation poses a threat to Tether's dominance.

• The bank said that complying with MiCA means Tether may have to change its reserve management strategy.

• Tether said in response to CoinDesk that "JPMorgan analysts still seem to have a fundamental misunderstanding of how our industry works."

JPMorgan Chase (JPM) said in a research note on Wednesday that Increased regulation could pose a significant challenge to Tether. Tether is the issuer of the largest stablecoin, USDT, which has dominated the cryptocurrency market in recent years.

A stablecoin is a cryptocurrency that is usually pegged to the U.S. dollar, but also uses some other currencies and assets such as gold.

USDT has a market capitalization of about $117 billion, more than three times that of its closest competitor Circle's USDC.

JPMorgan noted that

Europe's Markets in Crypto-Assets (MiCA) legislation requires that 60% of stablecoin reserves be held in European banks.

"Given Tether's reserve composition, complying with MiCA's strict requirements may require significant changes to its reserve management strategy," wrote analysts including Nikolaos Panigirtzoglou.

The bank said that stablecoin issuers have previously come under regulatory scrutiny due to a lack of transparency into the composition of their reserves, adding that “The new regulations will increase pressure on Tether to provide more detailed disclosures and audits.”

Failure to comply with these new rules could threaten Tether’s dominance in the stablecoin market, the report said.

In addition, JPMorgan said that U.S. stablecoin legislation is still pending, but when it eventually comes, most likely in 2025, adoption is expected to increase, making cryptocurrencies more mainstream.

“Stablecoins that comply with U.S. regulations will benefit, while non-compliant stablecoins will be challenged, potentially leading to industry consolidation,” the report said.

However, Tether refuted JPMorgan’s arguments and said the company remains optimistic about how MiCA will affect the industry. In a statement, a Tether spokesperson noted: “We recognize that the impact of these regulations will be felt over time, affecting every stablecoin issuer. However, certain aspects of the regulation present challenges that could complicate the role of stablecoin issuers and increase operational risks for EU-licensed stablecoins. Tether firmly believes that stablecoin regulations must ensure increased safety and not create systemic risk.” The stablecoin issuer also criticized Wall Street firms such as JPMorgan for their views on the digital asset industry. “The JPMorgan analysts still appear to have a fundamental misunderstanding of how our industry works. Tether has been very open about our processes and risk management procedures, demonstrating that we are safer, more transparent, and more reliable than traditional financial institutions themselves have been in recent years,” the spokesperson said.

The statement added: "While we are sure JPMorgan is envious of Tether's profit margins and frantically trying to catch up in the crypto space, Tether remains committed to serving its 350 million customers around the world and shaping the future of money."