Governments worldwide advance stablecoin legalization, but regulators and financial institutions remain cautious, with BIS reports highlighting significant limitations.
The stablecoin frenzy is sweeping global markets, driving share prices of companies tied to this emerging technology to astronomical heights—yet growing caution prevails among some investors.
Earlier this month, Circle Internet Financial (ticker: CRCL), hailed as the "first publicly traded stablecoin company," debuted at $31 per share before skyrocketing to $298.99 last week. As of Friday's close, Circle settled at $180.43, up nearly 500% from its IPO price.
Market Euphoria Meets Institutional Skepticism
Despite Circle's meteoric rise, short interest has climbed to over 25% of float, per S&P Global data. Similar volatility hit South Korea's KakaoPay (ticker: 377300), which soared 300% before facing heavy institutional sell-offs.
Key drivers behind the rally:
- Regulatory momentum (U.S. Senate passing the Clarity for Stablecoins Act)
- Political endorsements (including pro-crypto statements from U.S. presidential candidates)
- Retail investor enthusiasm echoing past meme-stock manias
The Policy Landscape: Progress and Pitfalls
United States:
The Clarity for Stablecoins Act proposes a federal framework for dollar-pegged stablecoins but awaits House approval. Critics argue the bill lacks consumer protections while over-favoring issuers.
South Korea:
President Lee Jae-myung’s administration proposed the Digital Asset Basic Act, which would:
- Allow companies with ~$368K capital to issue stablecoins
- Mandate reserve-backed redemption mechanisms
- Encourage fintech/banking sector participation
Yet ambiguity persists—no official timeline exists for implementation.
FAQ: Understanding the Stablecoin Surge
Q1: Why are stablecoins gaining mainstream attention?
A: Their potential to bridge crypto and traditional finance, plus government efforts to regulate them as payment instruments.
Q2: What risks do experts highlight?
A: BIS reports warn stablecoins fail critical monetary system tests and may only play niche roles long-term.
Q3: How are institutions reacting?
A: Divergence—retail buys while hedge funds short, citing valuations disconnected from fundamentals.
Skepticism from Traditional Finance
Citigroup analysts branded KakaoPay a "sell", calling its valuation "unjustifiably high." Meanwhile, South Korea's central bank cautioned that stablecoins could disrupt monetary policy without safeguards.
👉 How leading exchanges are navigating stablecoin regulations
Industry Realities:
- Circle’s $40B+ valuation now exceeds half of S&P 500 firms
- Korean fintech firms eagerly await regulatory clarity before launching stablecoin products
Long-Term Viability Questions
While Circle’s USDC (ranked #2 behind Tether’s USDT) shows adoption, BIS research underscores structural flaws:
- Lack of singularity: Multiple stablecoins fragment liquidity
- Redemption risks: Reserve mismanagement could trigger crises
- Regulatory dependency: Policy shifts may abruptly alter viability
👉 Stablecoins vs. CBDCs: The coming collision
Investor Takeaway:
Proceed with extreme caution—these assets blend cutting-edge potential with dot-com-level speculation. Diversify exposure and prioritize projects with transparent reserves and compliance roadmaps.