JPMorgan bearish on stablecoins: Will not reach $1 trillion level by 2028

JPMorgan Chase analyst team releases a report reaffirming their expectation that stablecoin market capitalization will not reach the trillion-dollar level, projecting a total market cap of approximately $500 billion to $600 billion by 2028. This stands in stark contrast to forecasts from other Wall Street institutions: Citigroup analysts predict $1.9 trillion in a base case by 2030 and $4 trillion in an optimistic scenario, while Standard Chartered estimates $2 trillion by 2028.

JPMorgan’s Pessimistic View Diverges Significantly from Institutional Forecasts

(Source: The Block)

The stablecoin market size grew by about $100 billion this year, exceeding $300 billion, with Tether’s USDT increasing by approximately $48 billion in supply, Circle’s USDC increasing by about $34 billion, contributing most of the growth. However, JPMorgan analysts believe this further confirms their long-standing view: stablecoin growth remains primarily driven by activity within the crypto ecosystem.

As they pointed out in their July report, most demand comes from using stablecoins as cash or collateral for crypto trading, including derivatives, DeFi lending, and crypto-native companies (such as venture capital funds) holding idle funds. Analysts note that just this year, stablecoin holdings on derivatives exchanges increased by about $20 billion, mainly due to a surge in perpetual futures trading. They believe perpetual futures trading remains the main driver of stablecoin supply growth.

This judgment sharply contrasts with other Wall Street institutions. Citigroup analysts forecast $1.9 trillion in a base case by 2030 and up to $4 trillion in an optimistic scenario. Standard Chartered estimates the market could grow to $2 trillion by 2028. Their optimistic outlook is mainly based on the expectation that stablecoins will see widespread adoption in cross-border payments, remittances, and physical goods trading.

JPMorgan vs. Other Institutions’ Forecasts Comparison

JPMorgan: $50-60 billion by 2028, believes crypto trading is the sole driver, and payment applications will not significantly increase supply

Citigroup: $1.9 trillion in a base case by 2030, $4 trillion in an optimistic scenario, optimistic about explosive growth in payment applications and emerging market adoption

Standard Chartered: $2 trillion by 2028, emphasizing that the efficiency advantages in cross-border payments will attract large-scale corporate adoption

The fourfold difference in forecasts reflects a fundamental disagreement on future stablecoin use cases. Optimists believe stablecoins will revolutionize traditional cross-border payments, while pessimists argue such applications face structural barriers.

Velocity of Circulation Theory: $200 Billion Is Enough

The core argument from JPMorgan analysts is based on the velocity of circulation theory. They point out that as stablecoins become more integrated with payment systems, the importance of their velocity (i.e., turnover rate) will surpass their total circulating supply. “As payment methods become more widespread, on-chain transaction activity and speed may accelerate, reducing the need for large stablecoin supplies.”

Their specific calculations are quite persuasive. USDT’s annual transaction velocity on the Ethereum blockchain is about 50, meaning each USDT token is used approximately 50 times per year. Assuming stablecoins facilitate about 5% of global cross-border payments annually (roughly $10 trillion), then the required stablecoin supply would be only $200 billion ($10 trillion ÷ 50 = $200 billion).

This logic thoroughly challenges the linear thinking of “more payment applications equals higher market cap.” If stablecoins truly become efficient payment tools, their velocity will significantly increase. For example, if velocity rises from 50 to 100, the same $10 trillion in payments could be supported by only $100 billion in supply. This inverse relationship is a fundamental principle of traditional monetary economics (Fisher Equation: MV=PQ), but is often overlooked in optimistic narratives within the crypto space.

Despite expanding payment-related use cases, JPMorgan analysts caution that this does not necessarily mean stablecoin market cap will grow substantially. The key is that efficiency improvements will offset scale expansion. When Visa or Mastercard integrate USDC as a settlement layer, the time to complete each payment can be shortened from days to seconds, and the same USDC can be reused dozens of times within a day.

Tokenized Deposits and CBDC as Competitive Threats

The second key limiting factor highlighted by JPMorgan analysts is the increasing competition from tokenized bank deposits and central bank digital currencies (CBDCs). Both alternatives outperform current stablecoin models in certain aspects.

Tokenized bank deposits refer to the direct tokenization of traditional bank deposits, circulating on blockchains. The advantages include: deposits are protected by FDIC insurance (up to $250,000 in the US), offering higher security than commercial stablecoins; banks are heavily regulated, providing better transparency and compliance; users do not need to leave the traditional banking system, lowering the barrier to entry. JPMorgan itself is testing JPM Coin, a tokenized bank deposit used for institutional settlement.

CBDCs are digital currencies issued by central banks, with legal tender status. China’s digital yuan has been piloted in multiple cities, and the European Central Bank and Federal Reserve are researching digital euro and digital dollar. CBDCs offer advantages such as zero counterparty risk (central banks won’t go bankrupt), clear legal status as legal tender, and the ability for governments to implement precise monetary policy via CBDC.

As these alternatives mature and enter the market, the appeal of stablecoins will decline sharply. Why would enterprises choose Tether’s opaque reserves over bank tokenized deposits or CBDCs for cross-border payments? The only answer might be “regulatory evasion,” but this is precisely the area where regulators are tightening controls.

Growth Ceiling Driven by Crypto Trading

JPMorgan analysts believe that stablecoin demand remains primarily driven by activity within the crypto ecosystem. This year, stablecoin holdings on derivatives exchanges increased by about $20 billion, mainly due to a surge in perpetual futures trading. This internal cycle determines the growth ceiling of stablecoin market cap: it is highly correlated with the overall size of the crypto market, not an independent expansion.

If the overall crypto market cap remains relatively stable over the next few years (for example, fluctuating between $2-4 trillion), it will be difficult for stablecoin market cap to surpass $600 billion. This is because the stablecoin-to-crypto market cap ratio has an empirical upper limit; historical data shows this ratio is usually between 10-20%. If the total crypto market cap is $3 trillion, 20% corresponds to $600 billion in stablecoin market cap, which aligns with JPMorgan’s forecast upper bound.

The reasonableness of this analytical logic is based on actual usage data rather than optimistic visions. Optimists often depict a grand scenario where “stablecoins will replace SWIFT,” but in reality, the vast majority of stablecoin transactions still occur within crypto exchanges and DeFi protocols, with a very small proportion used for physical goods payments or cross-border remittances.

Therefore, JPMorgan analysts conclude: “In the coming years, the stablecoin market size may continue to grow roughly in line with the overall crypto market cap, reaching perhaps $500 billion to $600 billion by 2028, far below the previous optimistic forecasts of $2 trillion to $4 trillion.” In their July report, analysts previously predicted a more steady growth to $10 billion by 2028 (this figure may be a typo). In May this year, they also stated that other forecasts of the stablecoin market reaching trillions of dollars are “overly optimistic.”

This consistent pessimistic stance indicates that JPMorgan’s team’s view on stablecoins is not a sudden whim but based on in-depth research and firm conclusions. For market participants, this sober perspective from a top-tier investment bank warrants serious consideration. To prove JPMorgan wrong, the stablecoin industry would need to achieve substantial breakthroughs in payment applications, rather than merely cycling within the crypto ecosystem.