Bitaigen Research BIS Says Stablecoins Fail Core Money Criteria Amid Institutional Scrutiny
At a Bank of Japan seminar in Tokyo on June 12, 2024, Pablo Hernández de Cos, general manager of the Bank for International Settlements (BIS), warned that the stablecoin ecosystem still lacks the essential attributes of a universally accepted payment instrument. He cited the absence of a “widely recognised issuer” and limited resilience to market stress as key gaps, positioning stablecoins as a niche rather than mainstream settlement tool.
The BIS analysis, released in its quarterly financial stability review, highlighted that the combined market capitalisation of the top ten stablecoins hovered around $120 billion in May 2024—roughly 1.5 % of global money‑market assets. Despite the growth, the report noted that none of the assets met the BIS’s three‑pronged test for money: store of value, unit of account, and medium of exchange. In particular, redemption mechanisms for several tokens remain contingent on off‑chain liquidity providers, creating a dependency that could amplify systemic risk during a market shock.
Institutional investors have shown a cautious appetite for crypto exposure. Data from Bloomberg indicated that U.S. Bitcoin ETFs attracted a net inflow of $2.3 billion in the first quarter of 2024, while Ethereum‑linked products recorded $970 million. These figures, however, remain modest compared to the $55 billion that flowed into traditional equity ETFs over the same period, underscoring the sector’s relative immaturity.
The Federal Reserve’s policy stance also weighs on the conversation. With the federal funds rate held at 5.25‑5.50 % since July 2023, the cost of capital for crypto‑related projects has risen, prompting some issuers to accelerate technical upgrades. The Tether network, for example, completed a migration to a proof‑of‑stake consensus in March 2024, aiming to lower energy consumption by 80 % and improve transaction finality times to under two seconds.
Regulators in the European Union are moving in parallel, drafting a “stablecoin framework” that would require issuers to hold 100 % of backing assets in liquid, high‑quality securities. The BIS cautioned that without such safeguards, stablecoins could face heightened scrutiny from both central banks and securities authorities.
The stablecoin market remains constrained by regulatory and technical hurdles, even as institutional inflows to related ETFs continue to rise modestly.
*Crypto assets were broadly flat on Tuesday, with Bitcoin near $27,000.*
⚠️ Risk Disclaimer: Crypto prices are highly volatile. This is not investment advice.
