The US rating agency Fitch Ratings, one of the “big three” rating agencies, released a report that stable coin growth could affect the securities and commercial paper (CP) markets. The agency says stablecoins could be “disruptive” and that “stablecoin turmoil” could “transmit shocks” to other markets.
Fitch Ratings: “Stablecoins could disrupt the CP markets”
On Monday, the “Big Three” credit agency Fitch Ratings released a report on stablecoins and the growth of these new assets. The report follows a study by Fitch that discusses El Salvador’s adoption of bitcoin (BTC) as legal tender in the country. The latest report explains that stablecoins have grown exponentially and the authors of the Fitch report point to the growth of the popular stablecoin tether (USDT). The study also mentions plans reported by Facebook to launch a stable crypto asset called “Diem”.
“The rapid growth of stable coins means that these holdings of securities are already relatively large,” Fitch noted. “Although Tether’s annualized market value growth slowed to 45% in 2Q21, it increased 230% from early 2021 through October 15 to reach $ 68.6 billion,” the agency added. rating. This growth and these “reserve allocations” could end up becoming a “significant investor group” in the US commercial paper market, suggests the Fitch Ratings study. The newspaper adds:
Stablecoins Could Disrupt CP Markets; for example, due to the risks involved. Stablecoin turbulence could both affect the CP market itself and transmit shocks to other market participants. Risks could be compounded if the infrastructure and partners used by stablecoin operators to engage with traditional markets do not have a track record of smoothly processing transactions during times of market stress or volatility. .
Fitch Ratings Report: “Regulatory Approach to Stable Coins Will Affect Sector Development”
In the article, the term “disruptive” is highlighted by a hyperlink that leads to another article published by Fitch Ratings on July 1, 2021. This specific report states that stablecoins could “pose new risks in the trading market. short-term credit ”.
Fitch researchers say in the latest stablecoin report released on Monday that regulation will define the development of the stablecoin industry. At present, the authors of Fitch claim that regulatory approaches in the EU and the US are currently “unclear.” The report hints at the belief that government entities might be able to hold stablecoins defined under the promise that reserves such as cash and low-risk government securities are maintained. Oversizing, something algorithmic and decentralized stablecoins (challenge) like DAI leverage, could reduce the overall damage, the Fitch report concludes.
“Requiring stablecoin operators to hold more reserves in safe, highly liquid assets could reduce allocations to CP, but increase the influence of stablecoins in the government market in the short term,” the Fitch Ratings report explains. “Other initiatives, including the potential launch of central bank digital currencies, could also significantly affect the demand for stablecoins.”
What do you think of the recently released Fitch Ratings report which explains that stable coin growth could affect securities markets and other areas of finance? Let us know what you think of this topic in the comments section below.
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