Can U.S. authorities rein in Tether amid its growing dominance? JPMorgan analyst hints

Banking giant JPMorgan has raised concerns about the possibility that Tether may soon be controlled by US authorities. Despite its overseas base, Tether’s dominance and regulatory issues could reshape the U.S. stablecoin landscape.

Tether’s Vulnerability to U.S. Authorities

JPMorgan’s report highlights the power of US authorities, particularly the Office of Foreign Assets Control (OFAC), to indirectly influence Tether. Tether’s blocking of wallets associated with the Tornado Cash mixer following OFAC sanctions highlights its sensitivity to U.S. regulatory pressure.

“U.S. regulators, through OFAC, may exert some control over the overseas use of Tether… Tether’s association with Tornado Cash, a privacy-enhancing platform on the Ethereum network, suggests that the “This is an example,” he wrote.

JPMorgan analysts expect the upcoming stablecoin regulatory law to impact Tether’s performance and market attractiveness, emphasizing the need for transparency and compliance. The opacity surrounding Tether’s reserves, holdings, and regulatory compliance raises concerns.

Tether CEO’s response

Tether CEO Paolo Ardoino dismissed JPMorgan’s concerns as jealousy and criticized the bank’s history of imposing billions of dollars in fines.

Ardoino argues that “JPMorgan’s current concerns seem to have more to do with jealousy over developments in financial and payment services. They have been ignoring them for the past decade, but are now upset because they have gained a lot of traction.”

Tether’s dominance poses risks

Tether’s lack of transparency and auditing is a serious risk, undermining trust and raising questions about Tether’s ability to maintain its peg in times of crisis. As Tether’s market power increases, concerns are growing about regulation and the potential impact of legal action on Tether’s operations and the broader cryptocurrency market.

Moreover, Tether’s unchecked dominance and structural flaws may pose systemic risks.

Since Tether is highly correlated with the price of Bitcoin and Ethereum, any loss of confidence in the stablecoin could potentially lead to highly volatile markets. Additionally, Tether’s role as a provider of liquidity may pose risks associated with sudden large redemptions.

in other words,

Despite the transparency highlighted by JPMorgan analysts, Tether’s position in the stablecoin market and its role as a primary source of liquidity in cryptocurrency trading remains unrivaled. However, we cannot ignore the interconnection between Tether issues and broader market confidence, especially in areas such as gambling where Tether is widely used.