Morgan Stanley just released a note that says banks are likely to use stablecoins as collateral for loans, but the firm’s analysts question whether there will be enough demand for these digital assets.
Morgan Stanley has published a report saying that “stablecoins are likely to be the next big thing in financial technology” and that banks will most likely profit from them. With cryptocurrencies hitting all-time highs, many investors are turning to stablecoin options. The market for these coins is only just beginning however, which leaves room for more players.Morgan Stanley has predicted that the demand for stablecoins will likely generate a “profit opportunity” for banks to provide this service. The firm says it’s not clear how many of these coins would be offered by large players in crypto, but there are potential benefits in offering them as well.A “stablecoin” is a cryptocurrency that is pegged to the value of another asset, such as the US dollar. Morgan Stanley says banks are “likely” to capitalize on this demand. Read more in detail here: what is a stablecoin.
According to CoinDesk, Morgan Stanley’s chief cryptocurrency analyst Sheena Shah expects the banking sector to profit from the demand for stablecoin deposits.
In the expanding decentralized finance (DeFi) industry, stablecoins, which are generally viewed as a bridge between crypto and fiat currencies, have a wide range of applications.
Banks are unlikely to lose out.
The market worth of stablecoins has risen to $137 billion, up from $20 billion a year ago, and according to Morgan Stanley’s top cryptocurrency analyst, banks are unlikely to lose out on the sector’s exponential expansion.
Government and central bank stimulus, Shah said, led to “hazardous assets hitting all-time highs,” with cryptocurrencies moving “similarly to risky assets.”
Nonetheless, “institutional investor enthusiasm in partaking in the rising price movement is growing,” she said.
Bitcoin’s (BTC) supremacy is eroding, according to Shah, as “other currencies outperform because to their lower costs and possible use cases.”
Charges for stablecoin minting and burning
Stablecoins provide crypto lenders, or so-called liquidity providers, access to a variety of yield prospects, enabling them to earn interest rates that are unheard of in traditional finance, which would surely compel regulators and governments to respond, Shah said.
In a study on stablecoins recently issued by the President’s Working Group on Financial Markets, US authorities suggested that issuers be confined to insured depository institutions.
“Insured depository institutions include both state and federally licensed banks and savings organizations, whose deposits are guaranteed by deposit insurance, subject to regulatory restrictions, and which have access to emergency liquidity and Federal Reserve services,” according to the research.
Morgan Stanley projected new streams of income for banks as the market sector continues to develop exponentially, given their capacity to participate in the minting and burning of stablecoins.
“It might also open up new income streams for banks if they can charge for the minting and burning of stablecoins, which is part of our Silvergate bull case investing thesis.” – 2/2 MS
November 4, 2021 — zerohedge (@zerohedge)
“As each blockchain gains market share, the war of the blockchains is expected to continue,” Shah said, noting that stablecoin issuance has surged 20-fold since 2020.
As more institutional investors opt to acquire bitcoin, Shah predicts that the number of people who possess it will decrease, resulting in centralization.
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