JPMorgan warns of severe liquidity shock for the entire Bitcoin market as an excerpted piece of the report outlined which we are looking into it some more in our latest BTC news.
The extract of JPMorgan praised the crypto industry for improving the on-screen liquidity better than traditional assets do. However, also JPMorgan warns of severe liquidity shock and how most provisions come from high-frequency-style traders that flee the markets when the volatility increases. The company commented during the 2020 global market rout where the liquidity decreased dramatically in LIBOR, short-term commercial paper, and other money markets. The US dollar buying power skyrocketed. It was not until the Federal Reserve decided to step up with its easing program when the global market recovered and took BTC upside as well.
The Central Bank’s decision to drop the interest rates to zero and to buy government and corporate debts prompted a long bull cycle across bonds, gold, stocks, and BTC markets. The cryptocurrency rebounded by more than 700 percent from its mid-March crash of $3858. Its potential to pare the gains is much higher now as the market anticipates a new liquidity crisis. Also, according to JPMorgan analysts, BTC’s biggest liquidity risks are from within the industry. JPMorgan’s note read:
“Tether Ltd claims reserve assets of cash and equivalents equal to their outstanding liabilities, but has famously not produced an independent audit and has claimed in court filings that they need not mention full backings.”
According to the data by CoinMarketCap, Tether has a circulating supply of $25.52 billion which is an increase of 500 percent from the start of 2020. iFinex on the other hand faces allegations of losing $850 million worth of its client funds to an entity based in Panama. The New York attorney general’s filings against iFinex reported that the crypto exchange BitFinex “faced extreme difficulty honoring its clients’ requests to withdraw their money from the trading platform”.
In 2018, the USDT stablecoin lost its peg to the US dollar and fell as low as $0.86 but BTC established a new yearly low two months after at $3200. Tether controls 80 percent of all BTC trading volume, as JPMorgan said:
“A sudden loss of confidence in USDT would likely generate a severe liquidity shock to Bitcoin markets, could lose access to by far the largest pools of demand and liquidity.”
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