Experts Warn of Impending Stablecoin Market Bubble Following Circles IPO Success

The successful IPO of Circle is anticipated to spark a «stablecoin craze,» but former BitMEX CEO Arthur Hayes predicts that most new issuers will face failures, as he stated.

The IPO, under the ticker CRCL, took place on June 5, with investors valuing the firm at $6.9 billion. On its debut trading day, shares surged by 168%, rising from $31 to $82.

As of this writing, the market capitalization stands at $36 billion, according to Yahoo Finance.

One of the significant players in the IPO was ARK Invest, managed by Cathie Wood, which sold $51.7 million worth of Circle shares on June 16, divesting 342,658 CRCL through three of its ETFs.

Hayes believes Circle’s successful listing will trigger a wave of IPOs from copycat companies. He is convinced that most of these projects will be overvalued and ultimately fail.

The expert further suggested that the bubble is likely to burst following the market debut of an issuer capable of separating «fools from billions of their capital.» Moreover, Hayes warned traders against shorting stocks from similar companies.

However, Verbitsky argues that regulatory compliance and selecting the right jurisdiction will be key criteria. These factors will help identify viable issuers amid a «bubble.»

«He pointed out, ‘This is what ensured Circle’s success — they built their business within the US legal framework, which is now establishing the regulatory landscape for the stablecoin market. This provided them with the necessary transparency and trust. Unlike them, Tether still does not exhibit the same level of regulatory diligence, particularly regarding the U.S.,'» the expert noted.

He added that only projects capable of ensuring transparency in reserves, adhering to regulations, and gaining access to major markets through reliable jurisdictions will thrive.

According to Hayes, the main challenge for new issuers will be distribution channels. He believes that to effectively reach millions of users, one of three specific avenues must be utilized:

«If a project lacks access to any of these channels, its chances for success are nonexistent,» asserts the BitMEX founder.

Hayes characterized the USDC issuer as «wildly overvalued,» noting that the company shares 50% of its interest income with Coinbase, while the stock price will «continue to levitate» amid the prevailing excitement.

He elaborated on Tether’s success story, which was driven by genuine demand from traders in China and Hong Kong seeking ways to transfer dollars as banks started closing cryptocurrency-related accounts. USDT addressed this need, gaining the trust of the Chinese crypto community and securing its dominance.

A pivotal moment for Tether was the ICO boom in 2017, during which exchanges without access to the fiat system began adopting USDT to create trading pairs with altcoins. This enabled the company to become an «indispensable tool» for the entire market.

The expert believes that social networks like X and traditional banks will not collaborate with third-party stablecoin issuers. They possess vast user bases and the resources to develop in-house products.

«I spoke with a board member of a major bank, and he remarked, ‘We’re doomed.’ He believes stablecoins are unstoppable,» Hayes shared.

He added that financial institutions will adapt, but will do so independently without relying on partners.

Verbitsky, on the other hand, expressed skepticism about the ability of traditional banks and social networks to become independent and effective stablecoin issuers.

«Large financial institutions could indeed create their own ‘stable coins,’ as they have both the resources and regulatory experience. But banks are extremely conservative. If the current model is profitable and doesn’t carry technological risks, why would they want to change it?» pondered the TYMO founder.

Regarding social networks, the expert believes they lack an understanding of financial and regulatory mechanisms — a point underscored by the failure of Meta’s Libra project. This territory is unfamiliar to them, Verbitsky explained.

«So, to sum up: banks could, but are unlikely to; social networks would want to, but won’t be able to,» concluded the speaker.

Despite the bleak outlook for newcomers, Hayes forecasts heightened interest in their stocks. This is attributed to the «incredible» profitability of the stablecoin business. Issuers derive income by placing reserves in U.S. Treasury bonds, profiting from interest rate differences.

According to him, Tether retains all its earnings since it has the strongest network and «its clients have nowhere else to go.» This model is expected to be a significant lure for investors to believe in «dubious companies with appealing presentations.»

On June 17, U.S. authorities took a significant step in regulating stablecoins. The GENIUS Act bill advanced closer to approval after the Senate voted in favor of its amended version, with 68 votes for and 30 against.

Senator Bill Hagerty, the bill’s author, stated, «Thanks to this legislation, the United States is one step closer to becoming a global leader in cryptocurrency.»

He added, «Once the GENIUS Act becomes law, companies of all sizes and Americans throughout the country will be able to conduct payments almost instantly, rather than waiting days or, at times, weeks.»

In a post on X, Treasury Secretary Scott Bessen pointed out that the bill’s passage makes it more likely that the stablecoin market could grow to $3.7 trillion by the end of the decade.

He noted that a developed ecosystem of «stablecoins» is likely to boost demand for U.S. Treasury bonds. This could lower the cost of government borrowing, help curb the national debt growth, and «attract millions of new users into the dollar-based digital economy worldwide.»

Bessen called this a «triple win» for the private sector, the Treasury, and consumers, describing the initiative as the result of «smart, pro-innovation legislation.»

Lastly, Circle’s CEO Jeremy Allaire mentioned that «stablecoins» are on the brink of a technological revolution.