CRYPTO MOVERS AND PRICES
Crypto was broadly rallying this morning with alt-coins outperforming. Spot volumes were declining and were about 40% of their 30-day average.
Crypto Story of the Day
Last week a U.S. Fed official said USDt reserves resemble a “very risky prime fund.” Despite persistent concerns over the stablecoin’s perceived regulatory challenges, the USDt market cap has tripled since the new year to USD 62 billion.
The reference was made by Eric Rosengren, President of the Federal Reserve Bank of Boston, during a presentation at the Official Monetary and Financial Institutions Forum. Rosengren placed “new disruptors - Tether” as a bullet on a slide exploring “Financial Stability Challenges.”
According to Rosengren, stablecoins received attention this month due to the collapse of an obscure algorithmic stablecoin. In Rosengren’s view, stablecoins “are not actually particularly stable and… have some features as money market funds.” The main difference between the 2 is that money market funds have been losing value but stablecoins have been “growing very rapidly.”
Rosengren went on to list a breakdown of assets backing USDt. In Rosengren’s view, the asset breakdown resembles a “very risky prime fund” and questioned USDt’s ability to remain “stable” across a variety of market conditions. The rising popularity of “these stablecoins” leads Rosengren to believe “there is a financial stability concern that a future crisis could easily be triggered.” In Rosengren’s view, regulation is required in order to ensure “more stability” in “what is being marketed to the general public as a stablecoin.”
To date, the bulk of regulatory scrutiny of stablecoin projects has been focused on Facebook’s yet-to-launch Diem project. Google searches for the term “usdt” indicate that the majority of search volume comes from countries where USD is difficult to access; like Cuba, China, and Laos; or with inflationary pressures, such as Turkey.
USDt and its issuer Tether have seen a number of baseless allegations emerge over the past several years. One such allegation was via an academic paper which alleged unbacked USDt was artificially created to prop up crypto prices. In March 2019, Tether adjusted the language describing its reserves to include “cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether…”
Typically, prime funds are those which aim to provide yields that roughly match prime rates. Given the lack of interest in traditional money market funds, USDt’s growing market cap clearly has little to do with the similarities it holds to those products. Rather, growing, diverse activities and applications which rely on stablecoins, such as crypto-to-crypto trading platforms like Binance, are the more likely drivers of USDt adoption.
Despite what’s proven to be a dynamic reserve mix in past years, crypto traders have continued to trust the coin and have placed a premium on the mechanism USDt offers.