Sunday, December 5

Stablecoin Tether Poses Equity Market Risks Says Fitch


a report from rating agency Fitch notes that the way Tether’s stablecoin holds its reserves could pose risks to the stock market. Fitch believes that trading paper reserves of stablecoins such as Tether (USDT) may end up being a major challenge in equity markets in the short term. In general, the agency believes that the The way to support the rapid growth of stablecoins carries potential risks to the stability of the stock market.

Bitcoin & Tether: why is the media ignoring it?

The rating agency noted that at the end of June, almost 50% of tether reserves were listed as commercial paper. One reality that could end up negatively impacting equity markets, he notes, is especially if USDT continues to grow at a fast pace and on a large scale.

Where is the $ 68 billion of Tether, the most popular stablecoin?

Fitch y la stablecoin tether

Tether is a cryptocurrency whose value is pegged to the US dollar in a 1: 1 ratio; that is, for every dollar in reserve there is 1 USDT in circulation in the market. If this were true, Tether would be one of the largest banks in the world, with a cash reserve of more than $ 68.6 billion. However, the aforementioned stablecoin barely has cash reserves in banks.

In July this year, Tether Limited detailed that only about 4% of the stablecoin was backed by fiat money. The rest of USDT’s reserves are listed, according to the company, as commercial paper, Treasury securities and corporate bonds.

New York-banned stablecoin Tether surpasses $ 40 billion in capitalization

Tether Limited’s holding of commercial paper is one of Fitch Ratings’ biggest concerns. The agency details that with more than $ 21.3 billion in commercial paper by the end of March, Tether may be among the largest holders of commercial paper in the money market in the United States, Europe, the Middle East and Africa. If Tether sustains the growth of its stablecoin as it has done now, in a couple of years its holdings of commercial paper would exceed those of all money market funds (MMF).

Stablecoin growth

Tether’s market capitalization has grown 230% since the beginning of the year, according to Fitch. Although its growth slowed by 45% in the second quarter, the capitalization of this stablecoin continues to be huge. More so considering that USDT dominates over 52% of the entire stablecoin market. Due to its magnitude, the risks of this currency in the stock market could also be relatively large.

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The rating agency also indicated that risks could be compounded if the infrastructure and partners used by stablecoin operators to interact with traditional markets lack a track record of smoothly handling transactions, especially in periods of stress or volatility. From the market.

The United States investigates whether Tether committed bank fraud

Last weekend, the United States Commodity Futures Trading Commission (CFTC) imposed on Tether Limited a more of 41 million dollars. The reason was none other than the lack of transparency and inconsistency of their reports since the beginning of their business. Bitfinex, the USDT-related cryptocurrency exchange, was also punished with a fine of $ 1.5 million. Both companies were accused by the CFTC of violating the Commodity Exchange Act (CEA).

Risks for the stock market

The appearance of new or greater disturbances of stablecoins in the stock market in the short term could affect the market itself or infect other market participants, Fitch said. The global rating agency linked the magnitude of the impact that stablecoins could cause in the stock market with the regulations imposed in this sector.

G7 reiterates that no global stablecoin can trade until it meets regulation

In its report, Fitch highlights the importance of adapting and evolving existing regulations. If US and European regulators succeed in imposing a clear and robust regulatory framework on stablecoins, the potential risks could be minimized, it says. While the lack of precise regulation on stablecoins would unleash a number of new challenges and risks. Fitch believes that regulation in key markets, especially the United States and the European Union, remains unclear.

Circle and Coinbase stablecoin

Reserves play a fundamental role in the stability of the securities markets. For this reason, Fitch considers that the lack of clarity and transparency of the stablecoin issuers in the reserves that back the value of their coins is one of the greatest risks that exists today. Even in cases where the issuers of these currencies try to provide the greatest possible clarity.

Stablecoins that the SEC equates to casino chips are worth $ 130 billion

For example, Circle, the company responsible for issuing the stablecoin USD Coin (USDC), claims to guarantee a high level of transparency in relation to the issuance of its stablecoin. But Fitch Ratings notes that its reserve asset breakdowns are not readily available, so its reserves remain somewhat opaque. However, USDC only held about 10% of its reserves in commercial paper in June. Circle committed to reducing this amount and guaranteeing 100% cash reserves. At the end of August, approximately 92% of the circulation of this stablecoin in the market was already backed by fiat money.

Stablecoins that the SEC equates to casino chips are worth $ 130 billion

The appearance of new stablecoins on the market could increase the current capitalization of this market, which currently exceeds $ 130 billion, with USDT and USDC leading the way. Fitch believes that the massive emergence of central bank issued digital currencies (CBDCs) could significantly affect future demand for stablecoins.

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