Circle's listing price was $31, and now it has reached $151. Arthur Hayes, founder of BitMex, pointed out on his personal blog that the valuation of the US stablecoin concept stock Circle was too high after its IPO, but he also warned against short CRCL and that investors should buy Coinbase shares in disguise, because the agreement between Circle and Coinbase is that Circle will give 50% of its interest income to Coinbase in exchange for adoption. He also reviewed the history of stablecoin development and analyzed why investing in new stablecoin issuers often leaves investors with nothing.
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ToggleBitfinex develops Tether as a stablecoin
Arthur Hayes first discussed the past of stablecoins. When he first bought Bitcoin in 2013, he still used cash and transferred money to the seller to buy Bitcoin. Bitfinex was the largest cryptocurrency exchange outside of China from 2014 to the end of the 2010s. Bitfinex and Tether are actually backed by the same people. In 2015, Tether developed Tether USD, and Bitfinex allowed the use of USDT on its platform.
Stablecoins, like all payment systems, only become valuable when a large number of participants with economic influence become network nodes (network effect). In the case of Tether, in addition to Bitfinex, cryptocurrency traders and other large exchanges need to use USDT to solve the problem. At the same time, the Chinese are facing the same dilemma. Banks are closing accounts of traders and exchanges, and there are foreign exchange controls. Digital USDT, which can be used by anyone with an Internet connection, is very attractive.
Tether takes advantage of the ICO boom, the RMB depreciates, and digital dollars become the main source of capital flight
At the same time, the market structure has changed dramatically, and Tether really solidified its product-market fit in 2017, at the peak of the ICO boom. August 2015 was a very important month because the People's Bank of China conducted a shock devaluation of the RMB-USD exchange rate. Ethereum also started trading at the same time. Developments at the macro and micro levels created a bull market in December 2017. Bitcoin soared from $135 to $20,000, and Ethereum soared from $0.33 to $1,410.
The shock devaluation of the RMB exacerbated capital flight, with a large amount of RMB being exchanged for US dollars, cryptocurrencies, gold, foreign real estate, etc. By August 2015, the price of Bitcoin had fallen from its historical high of $1,300 before the bankruptcy of Mt. Gox in February 2014 to a low of $135 on the Bitfinex exchange at the beginning of that month. The argument of capital flight from China triggered a surge in the price of Bitcoin, with the Bitcoin-USD trading pair more than doubling from August to October 2015.
Taiwan was once a crypto banking hub
Altcoin continue to emerge after Ethereum, and USDT provides a perfect trading medium for Altcoin exchanges such as Poloniex. These exchanges do not need to be connected to banks, as long as they use USDT as a trading medium. After the Ethereum mainnet is launched, USDT can be circulated on the Internet using the ERC-20 token standard. Any exchange that supports Ethereum can also support USDT. Therefore, pure cryptocurrency trading platforms can provide Altcoin/USDT trading pairs to meet market demand.
From 2015 to 2017, Tether achieved product-market fit and built its own moat. Due to the trust of the Chinese trading community in Tether, USDT was gradually accepted by all mainstream trading platforms. At that time, USDT was not yet used for payment, but it was the most efficient way to transfer digital dollars in and out of the cryptocurrency capital market and within it.
In the late 2010s, exchanges were having great difficulty maintaining bank accounts. Taiwan became the de facto crypto banking hub for all large non-Western exchanges. This was because some Taiwanese banks allowed exchanges to open USD accounts and maintained correspondent banking relationships with large US banks. However, as correspondent banks asked these Taiwanese banks to expel all cryptocurrency customers, USDT became the only way for USD to flow on a large scale in the cryptocurrency capital markets.
Stablecoins are unstoppable, and traditional giants are also beginning to consider using stablecoins
Many Western players wanted to become competitors to Tether. The only company that survived was Circle's USDC. However, Circle's disadvantage was obvious because it was a US company and had no connection to the core of cryptocurrency trading and use in Greater China. In 2019, Facebook (now Meta) decided to launch its own stablecoin, Libra. The appeal of Libra is that Facebook can provide services to global users outside of China through Instagram and Whatsapp.
Libra could put commercial banks and central banks in a difficult position. It could reduce their role and turn central banks and traditional banks into regulated digital fiat currency warehouses. This is exactly what these institutions should encounter in the digital age. Therefore, the US political circles began to take action to protect the competition of traditional banks in the payment and foreign exchange fields. But it is all in the past. Trump 2.0 has no good feelings towards those banks that made things difficult for Trump's family during Biden's administration. Social media platforms Meta, X, Airbnb, Google, Amazon, and Walmart are all discussing stablecoins.
( Wall Street Journal: Amazon, Walmart plan to issue their own stablecoins )
Arthur Hayes said that banks can no longer earn billions of dollars a year by holding and transferring digital fiat currencies. He recently talked to the board members of a large bank about stablecoins, and they believe that stablecoins are unstoppable. Take Nigeria as an example. Even though the Central Bank of Nigeria is very serious about trying to ban cryptocurrencies, Nigeria's USDT settlement amount still accounts for one-third of GDP.
Tether has established a usage moat
The profitability of a stablecoin issuer depends on the amount of its net interest income (NIM). The issuer's costs are fees paid to holders, and the income comes from cash investment returns on Treasury bonds (such as Tether and Circle) or arbitrage in some cryptocurrency markets, such as fee arbitrage (Ethena). The most profitable issuer, Tether, does not pay any fees to USDT holders, but earns all NIM based on the yield level of Treasury bills (T-bill).
Tether is able to preserve its net gains because it has the strongest network effect and its customers have no choice but to hold USD bank accounts. Potential customers will not choose other USD stablecoins other than USDT because USDT is accepted throughout the southern hemisphere.
Arthur Hayes spends a few weeks every year skiing in the Argentine countryside. When he first went to Argentina in 2018, it was a hassle to pay if the merchant didn't accept foreign credit cards. But by 2023, USDT has replaced USDT, and guides, drivers, and chefs all accept USDT payments. In comparison, bank ATMs can only withdraw a maximum of $30 worth of pesos per transaction and charge a 30% handling fee.
New stablecoin projects often share revenue with users in exchange for adoption
Unless your stablecoin is owned by an exchange, social media company, or traditional bank, the cost of issuing a stablecoin can be very high. Bitfinex has millions of customers, so Tether has millions of customers from the beginning. Circle and any stablecoin that comes after it will have to distribute the stablecoin somehow, and social media companies and banks will never work with third parties, so cryptocurrency exchanges are the only option.
Cryptocurrency exchanges can build their own stablecoins, just like Binance tried to launch BUSD, but most exchanges believe that building a payment network will distract them from their core business. Coinbase is the only large exchange that does not cooperate with Tether because Coinbase's customers are mainly Americans and Western Europeans, and Tether has been portrayed as a scam by Western media. Regarding the details of the cooperation between the two parties, Arthur Hayes revealed that Circle will pay 50% of its net interest income to Coinbase.
New stablecoin issuers are in a very dire situation. There is a lack of distribution channels. New issuers must distribute a large amount of net income (NIM) to depositors in order to attract users from other stablecoins with higher adoption rates. This is why investing in new stablecoin projects often makes investors lose everything.
How to deal with Circle's overvaluation? Arthur Hayes suggests buying Coinbase
As for the future development of stablecoins, U.S. Treasury officials believe that the AUC (circulation) of stablecoins may grow to $2 trillion. Basically, stablecoin issuers are price-insensitive buyers of U.S. Treasury bonds. Don’t forget that Trump has a deep hatred for large banks because these banks closed his and his family’s bank accounts after his first presidential term.
Calculated by AUC, Circle is the world's second largest stablecoin issuer. However, Arthur Hayes pointed out that Circle's current valuation is seriously overestimated. You know, Circle gives 50% of its interest income to Coinbase. However, Circle's market value is only 39% of Coinbase. However, Arthur Hayes also warned that you should never short Circle. If you think the Circle/Coinbase ratio is wrong, you should probably buy Coinbase.
The next wave of IPOs will be Circle copycats. These stocks will trade at higher P/E ratios than Circle in relative terms. In absolute terms, their revenues will never surpass Circle’s. Promoters will tout meaningless TradFi credentials, trying to convince investors that they have the connections and capabilities to disrupt traditional banks in global dollar payments by partnering with them or leveraging their distribution channels.
Risk Warning
Cryptocurrency investment carries a high degree of risk. Its price may fluctuate drastically and you may lose all your capital. Please assess the risk carefully.
Just as the stablecoin bill "GENIUS Act" was preparing to move forward to substantive review, JP Morgan Chase (JP Morgan) submitted a "JPMD" trademark application to the US Patent and Trademark Office, covering a number of crypto-asset-related businesses, and the outside world speculated whether it would issue its own stablecoin.
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Toggle"JPMD" trademark application covers crypto asset business
JPMorgan Chase filed a trademark application for "JPMD" with the United States Patent and Trademark Office (USPTO) on June 16, Eastern Time, and provides digital asset trading, exchange, transfer and payment services, including:
Virtual Currency
Digital Currency
Digital Tokens
Payment Tokens
Decentralized Application Tokens
Blockchain Enabled Currency
Although "stablecoin" is not directly mentioned in the document, the outside world believes that this may be a step for JPMorgan Chase to promote its own stablecoin.
「JPMD」 supports DeFi infrastructure
In addition, JPMorgan Chase plans to build a platform to support blockchain financial infrastructure through "JPMD". It is expected to introduce distributed ledger technology (DLT) for digital asset trading, clearing, securities settlement and brokerage services, and further advance its layout in the DeFi field.
Financial institutions are scrambling to seize the stablecoin BTC, and the GENIUS Act is accelerating the development of the
On June 11, Bank of America CEO Brian Moynihan publicly stated that he is working with industry insiders to develop a dollar-pegged stablecoin, further confirming a number of rumors in the market in recent months.
It is understood that many large financial institutions such as JPMorgan Chase and Bank of America are considering jointly issuing stablecoins. At present, the outside world believes that this "JPMD" trademark application is closely related to the rumors of issuing stablecoins at the time.
The timing of the "JPMD" application also coincides with the implementation of the stablecoin bill "GENIUS Act". The bill has now officially entered the substantive review and has the opportunity to be submitted to the House of Representatives before August and for US President Trump to sign the bill.
Kinexy has processed 1.5 trillion Mg trading volume, and the stablecoin market is full of contention
A few years ago, JPMorgan Chase launched a blockchain payment platform called Kinexy and issued its own stablecoin JPM Coin to settle its own banking transactions. To date, it has processed transactions totaling more than US$1.5 trillion.
JPM Coin is designed to be 1:1 anchored to fiat currency, and currently corresponds to the US dollar, British pound and euro. It is mainly used for transactions and clearing services between large institutions.
According to CoinGecko data, the global stablecoin market value has reached $261.4 billion. Assuming that JPMorgan Chase and other banks successfully launch stablecoins, they will directly enter this highly competitive and lucrative market.
( Clear regulation helps! Bank of America is developing its own dollar stablecoin: We must be ready )
Risk Warning
Cryptocurrency investment carries a high degree of risk. Its price may fluctuate drastically and you may lose all your capital. Please assess the risk carefully.
