J.P. Morgan Posts Stablecoin Primer
J.P Morgan recently published an article titled, "Stablecoins in an unstable world," which talks about the pros and cons of stablecoins. The article starts off, "The world has been a little busy between the Fed and geopolitical tensions in Eastern Europe, but that has not stopped the world from continuing to acclimate to digital assets. Arguably, this has even heightened the focus on cryptocurrency, including stablecoins. Indeed, even as the broader cryptocurrency market has been under pressure recently, the market capitalization of stablecoins has continued to grow, reinforcing the notion that stablecoins are the cash of crypto. According to CoinMarketCap, the top six largest stablecoin issuers alone have about $178bn in market value, up from $156bn at year-end and just $57bn a year ago.... Meanwhile, the broader cryptocurrency market has fallen by 17% YTD to a market cap of $1.8tn, roughly flat to where it was a year ago." They continue, "Given the explosive growth of stablecoins, it's not surprising that public scrutiny of this sector has intensified sharply over the past few months. Regulators are determined to regulate it. In a July 2021 FSOC meeting, Treasury Secretary Yellen 'underscored the need to act quickly to ensure there is appropriate U.S. regulatory framework in place.' In his Congressional testimony in September, Fed Chair Powell noted that 'stablecoins... [are] to some extent outside the regulatory perimeter, and it's appropriate that they be regulated.' SEC Chair Gensler further emphasized in a media interview that 'stablecoins are acting almost like poker chips at the casino right now. Without stronger overview, people get hurt.' In November 2021, a report on stablecoins from the President's Working Group on Financial Markets recommended that stablecoin issuers be regulated like banks.... In a recent opinion piece as well as in her Congressional testimony, Nellie Liang, the Under Secretary for Domestic Finance, also argued for more oversight and to regulate stablecoin issuers like banks." JPM adds, "All of this matters because the growing adoption of stablecoins could have significant implications for both banks and the broader money markets. As stablecoins become more mainstream, they could fundamentally change the way households and businesses bank given their real-time nature and the ease of digital payments. The utility and economic value of stablecoins could take away substantial funding from banks and MMFs, and potentially influence the implementation of monetary policy. The competitive landscape for banks and MMFs could also dramatically change as alternatives such as CBDCs and/or tokenized deposits surface. Arguably, from a markets perspective, this could structurally widen the Libor/Bills spread. In this note, we take a look at what stablecoins are, and what they are not. We focus on the similarities and differences among stablecoins, deposits, and MMFs. From there, we assess how regulating stablecoins like banks could have implications for the money markets and the banking system."
