Cryptocurrency Market Disrupts Money-Market Industry with 30% Surge

The cryptocurrency market has experienced a remarkable 30% increase this year, reaching a valuation of $1.05 trillion. This growth is disrupting short-term funding markets, as noted by JPMorgan. The surge is intensifying competition with the $5.64 trillion money-market sector for Treasury bills, particularly following restrictions on access to the Federal Reserve’s Overnight Reverse Repurchase agreement (ON RRP).

According to Teresa Ho from JPMorgan, stablecoin issuers, including USDC, which hold reserves of around $114 billion, are pivotal in this disruption. The recent expansion of the cryptocurrency market has heightened the risk of swift liquidations impacting Net Asset Value (NAV), a concern brought to light by the collapse of TerraUSD in May 2022.

Strategists have observed, “While prohibiting access to non-standard money-market funds makes sense from a financial stability perspective, it risks potentially disrupting the already-soft floor for money market rates that the Fed’s ON RRP currently provides.”

The incident involving TerraUSD serves as a clear warning about how rapidly liquidations can influence NAV. The stablecoin’s abrupt decline in May 2022 exemplified the potential hazards linked to digital assets.

As the cryptocurrency market maintains its upward momentum this year, its impact on short-term funding markets is likely to continue. The competition with conventional money-market players for Treasury bills is expected to remain strong, particularly in light of recent limitations on access to the Fed’s ON RRP.