JPMorgan Analysts Say That Bitcoin’s Tail Risk May Be An Uncertainty In Tether’s Reputation

According to JPMorgan analysts, the uncertainty and lack of confidence in Tether (USDT) stablecoin could pose a major risk to bitcoin. In an 86-page comprehensive report published on Thursday by JPMorgan analysts, who were being led by Joyce Chang, the chair of global research, it was said that bitcoin’s price could be affected by any unfavorable developments in USDT.

The analysts stated that a lack of trust in stablecoin would probably instate a huge liquidity wave to the bitcoin market, which would make them liable to lose their access to the biggest pool of liquidity and demand.

USDT is mostly used as the means of trading bitcoin as the market cap of stablecoin increased to more than $30 billion. JPMorgan analysts stated that about 50 to 60% of the bitcoin trade happens through stablecoin since 2019, citing data from asset manager NYDIG.

Alarming Fact

Tether issues USDT and has pegged it one to one ratio against the US Dollar. The alarming thing is that the same firm regulations that the normal commercial banks are subjected to are not applicable on Tether, which entails that it has no deposit insurance and could pose a risk for bitcoin, stated by the analysts.

The possibility of an uncertain event that could cause significant damage to an asset is called tail risk. It is a type of risk associated with the portfolio, which occurs when an investment fluctuates greater than three standard deviations compared to the mean higher than the normal distribution’s risk.

Tether’s Claims

Analysts from JPMorgan stated that Tether says their cash and equivalent reserve assets are equal to the liabilities that are outstanding, but they have never allowed an external audit and said that they do not need to maintain a full backing in their court filings.

This means that the ability or willingness of any foreign or domestic investor to use stablecoin could result in a major liquidity blow to the general cryptocurrency market with a possibility of being magnified by its uncertain impact on HFT-style market traders who highly influence the flow, according to the analysts.

JPMorgan’s analysts and research team believe that bitcoin has a permanent spot in the market as a currency alternative but is not the main focus of the economy right now. The analysts are still not positive that cryptocurrency assets give any significant diversification opportunities compared to equities and other assets.