JPMorgan casts doubt on stablecoin market cap growth

Stablecoin adoption is accelerating, but JPMorgan analysts are pushing back on the assumption that usage growth will automatically translate into market cap growth.

A stablecoin is a cryptocurrency pegged to a stable asset, such as the dollar, designed to maintain a fixed value and avoid the price volatility typical of other cryptocurrencies.

The stablecoin market cap stands at about $322 billion as of May 1, as per CoinMarketCap with Tether's USDT and Circle's USDC occupying the mammoth share. 

USDT's market cap stands at roughly $189 billion, while that of USDC stands at $77 billion. 

JPMorgan estimates stablecoin transactions are running at an annualised pace of approximately $17.2 trillion this year, based on year-to-date data. 

The analysts attributed a significant portion of this acceleration to the passage of the GENIUS Act in the United States last year, which established the first major federal regulatory framework for stablecoins and unlocked broader adoption by institutions and merchants.

Related: Trump issues bold warning on CLARITY ACT to bankers

Market cap growth is still doubtful

According to analysts led by managing director Nikolaos Panigirtzoglou, the key metric to watch out for stablecoin market cap growth is velocity, TheBlock reported.

It refers to the frequency with which the same stablecoin circulates through transactions. 

As payment systems built on stablecoins become more efficient, the same pool of coins can process a far larger volume of activity without requiring new coins to be minted. 

"In our opinion, the more widely used stablecoin-based payment systems become, the higher their efficiency and thus their velocity," the analysts wrote. "In turn, higher velocity would likely limit the expansion of the stablecoin universe going forward, even if their usage in payments rises exponentially from here."

In other words, the very efficiency that makes stablecoins attractive as a payment rail may be the factor that caps how large the market cap can grow.

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US remains stuck on yields

While the GENIUS Act set the framework, the next bill is set to address an important question on stablecoins.

The Digital Asset Market CLARITY Act is a comprehensive legislative package designed to establish a clear regulatory framework for digital assets in the U.S. However, the fiercest debate is happening over yields on stablecoin.

Stablecoin yield is the interest or return earned by holding stablecoins, similar to a savings account, generated through lending, staking, or investing the underlying reserves.

The debate now is whether platforms can offer yield on stablecoin balances. 

Banks argue it replicates deposit-taking without regulatory safeguards, threatening their business model. The current compromise bans passive yield on stablecoin balances but allows narrowly defined activity-based rewards, similar to credit card rewards. 

Crypto insiders have called the language overly narrow and unclear. More than 100 crypto firms, including Coinbase, Ripple, and Circle, have signed a letter urging Senate leadership to schedule a markup hearing as soon as possible.

Related: Stablecoins are becoming ‘digital cash,’ says Paybis co-founder