JPMorgan casts doubt on trillion-dollar stablecoin forecasts — even with US regulation advancing

Projections that the total supply of stablecoins could triple or quadruple in the next year or two from the current level of around $240 billion — approaching the trillion-dollar mark — are "far too optimistic," even as U.S. regulatory frameworks gain traction, according to JPMorgan analysts.

Of the two proposed stablecoin bills in the United States — the GENIUS Act in the Senate and the STABLE Act in the House — the former has gained more support. Earlier this week, senators voted to advance the GENIUS Act.

However, both bills prohibit stablecoins from paying interest, aiming to define them as "payment stablecoins" akin to traditional money. This restriction would hurt stablecoin growth by making them less competitive with traditional interest-bearing instruments like money market funds, which saw $900 billion in inflows in the U.S. over the past year, JPMorgan analysts led by managing director Nikolaos Panigirtzoglou wrote in a report shared with The Block on Wednesday.

"The growth of these non-interest bearing stablecoins over time would depend mostly on two factors 1) on their use in payments systems and 2) on the broader crypto ecosystem's expansion, the higher the usage of crypto tokens in real-world applications or higher activity in areas such as DeFi, NFTs or other applications, would expand the overall crypto market cap and with that the stablecoin universe given its typical 7%-8% share," the analysts wrote. "We find talk about tripling or quadrupling of the stablecoin universe over the coming year or two to be far too optimistic."

Several major institutions, including Standard Chartered and Citi, have projected that stablecoins could surpass $1 trillion in supply in the coming years, but JPMorgan remains skeptical.

If stablecoins were allowed to pay interest, they could have tapped into part of the $900 billion annual growth in money market funds, enabling faster expansion. But with proposed regulations prohibiting yield, the JPMorgan analysts say their growth will be more limited and dependent on crypto adoption and real-world use cases.

Meanwhile, yield-bearing stablecoins like tokenized treasuries (e.g., BlackRock's BUIDL) and securitized products (e.g., Figure Markets' YLDS) are expected to keep growing as idle crypto capital seeks returns, according to the analysts. While it's hard to estimate the size of that idle cash, the analysts added that it likely makes up a small portion of the total stablecoin market. In March, the analysts projected that yield-bearing stablecoins could grow from 6% to as much as 50% of the market.

The analysts further said on Wednesday that a stablecoin framework, if passed, would favor U.S.-compliant entities such as banks, exchanges, and fintech firms — with players like Bank of America and Stripe already making moves in the space. By contrast, non-compliant issuers like Tether would face increased scrutiny, particularly around reserve disclosures.

"18% of Tether reserves are currently non-compliant with the GENIUS Act," the analysts noted. "Required reserves would need to be compliant with the proposed regulation. It is unclear as to how Tether may do this. Its $5.6 billion of excess reserves and profits cumulated over the past years offer some room for manoeuvre."

The analysts also said that crypto-backed or algorithmic stablecoins like DAI would be banned under the proposed U.S. rules, calling them "the main losers" of the legislation. Such projects may shrink or move offshore to avoid U.S. oversight, they added.