Stablecoins play an important role in cryptocurrency trading, potentially competing with the existing banking system, Morgan Stanley said in a February 13 research report.
The bank noted that US regulators have started restricting stablecoin issuance, adding that stablecoin issuance is important for crypto traders. The drop in stablecoin market capitalization signals a decline in cryptocurrency liquidity and leverage, equating to a quantitative tightening in the cryptocurrency market, the report said. A stablecoin is a type of crypto asset whose value is pegged to another asset such as the US dollar or gold.
Morgan Stanley points out that the market cap of stablecoins began to shrink around the same time as the US Federal Reserve (Fed) balance sheet.
While the price of Bitcoin (BTC) led stablecoin market cap growth during the 2021 bull market, the opposite happened during the 2022 bear market, the report states.
Analysts Sheena Shah and Kinji Steimetz said, “Rising market prices have given traders greater leverage in the form of borrowing stablecoins, and stablecoins It was used to buy more crypto assets.” “The drop in market prices was catalyzed by a decline in cryptocurrency liquidity caused by traders closing long positions and subsequent redemptions of received stablecoins.”
Morgan Stanley expects U.S. cryptocurrency regulation efforts to focus on regulating stablecoins, requiring operators that issue stablecoins to register and backing the stablecoins they issue. He said he would need to prove that he has sufficient liquid assets for the time being.
“All stablecoins rely on market confidence in the system’s ability to maintain a stable value,” the report adds.
｜Translation: coindesk JAPAN
｜Editing: Toshihiko Inoue
｜Original: Morgan Stanley: Falling Stablecoin Issuance Is Negative Sign for Crypto Trading
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