JPMorgan, Tether spat escalates as stablecoin issuer slams another critical bank report

JPMorgan’s clients have burning questions about Tether.

The investment bank addressed clients’ inquiries in a critical note on Thursday. Specifically, who uses it, the regulatory risks associated with it, and what impending regulation means for the multi-billion dollar stablecoin.

Tether rejected the criticism, labelling it as “hypocritical” in messages to DL News.

‘Hypocritical attacks’

Tether is at risk from regulatory changes, both domestically and abroad, according to JPMorgan.

Clients raised several questions after JPMorgan’s earlier February note cited alleged systemic risks related to Tether’s stablecoin — namely that Tether’s growing dominance was bad for both the crypto and stablecoin markets.

“Who uses Tether? The Tether user base looks rather diverse across both centralised and decentralised space,” JPMorgan analysts wrote, addressing client inquiries.

That includes entities operating both within and outside the US, the investment bank said. Much of Tether’s user base “resides offshore in less stringent regulation jurisdictions beyond the direct reach of US regulators,” the bank said.

The investment bank cited a recent United Nation’s report that “suggests USDT has become a prominent payment method for money laundering and scams in Southeast Asia.”

Tether kicked back at JPMorgan’s latest report.

Tether is “proud” of its collaboration with law enforcement, particularly in the US, to curb the illicit use of stablecoins, the stablecoin issuer told DL News via email.

“These hypocritical attacks from the world’s biggest bank suggest JPMorgan’s jealousy over missing the boat on Bitcoin and stablecoins,” Tether said.

“Perhaps instead of obsessing over Tether’s market dominance, JPMorgan could address their own practices that have led to them paying nearly $40 billion in fines for banking, securities and other violations.”

Tether cited a violation tracker that claims JPMorgan has been fined a total of $39.34 billion on 275 separate occasions between 2000 and 2024, when asked to clarify its remarks by DL News.

JPMorgan declined to respond to Tether’s comment.

Regulatory concerns

New regulations and the ability to sanction Tether’s offshore usage were also at the top of clients’ minds.

“Can US regulators exert control on Tether’s offshore usage?,” clients of JPMorgan asked.

“US regulators can exert some control on Tether’s offshore usage via OFAC (Office of Foreign Assets Control), which applies to foreign entities whose activities are related to the US financial system,” JPMorgan said.

Tether’s association with the crypto mixer Tornado Cash — which OFAC sanctioned in August 2022 — is an example of how US authorities can exert some control over the stablecoin, according to JPMorgan analysts.

Tornado Cash allows users to obscure transactions. The use of Tether via this privacy enhancement tool has “reportedly enabled users to anonymise their transactions for illicit activity,” the bank said.

“While direct legal actions against offshore entities and decentralised firms are complex, indirect measures and international cooperation could potentially hinder the usage of Tether,” JPMorgan said.

Stablecoin regulations are an example of this, the bank added.

Regulations are planned to be “coordinated globally via the Financial Stability Board (FSB) across the G20, further constraining the usage of unregulated stablecoins such as Tether,” JPMorgan wrote.

Regulations in the US and in Europe, slated for later this year, will address concerns over issuers, reserves, liquidity and stability, the investment bank said.

“Upcoming stablecoin regulations would likely put indirect pressure on Tether as its attractiveness would diminish relative to stablecoins with more transparency and greater compliance,” JPMorgan analysts wrote.

The bank’s analysis comes amid heightened scrutiny in recent months of stablecoins, particularly regarding their role in money laundering, terror financing and regulatory compliance.

Crypto market movers

• Bitcoin slipped 0.4% to $51,800.
• Ethereum fell 1.5% to trade just above $2,750.

What we’re reading

• Fidelity says rate cuts could push institutions towards ‘more attractive’ DeFi yields — DL News
• Digital euro will offer ‘advanced privacy,’ says ECB exec — DL News
• Lazarus Group Shifts Crypto Money Laundering Technique: Report — Milk Road
• Jupiter Blocks XRP ETP Amid Regulatory Confusion: FT — Milk Road

Adam Morgan McCarthy and Sebastian Sinclair are markets correspondents at DL News. Have a tip? Contact them at adam@dlnews.com or sebastian@dlnews.com.