Arthur Hayes: Stablecoin IPO Gold Rush Could End Badly for Retail Investors

Key Takeaways

• Arthur Hayes has warned that stablecoin stocks like Circle may be overvalued.
• As more stablecoin companies go public, it could create a bubble, he warned.
• Retail investors are ill-prepared for such market shocks.

In his latest blog post published on Tuesday, June 17, Arthur Hayes warned that Circle is “grossly overvalued” and predicted that other stablecoin IPOs will contribute to a financial bubble.

Hayes’ rationale is simple. There are only a few viable stablecoin distribution models, and any issuer that isn’t already established will struggle to compete.

Tether has the Crypto Market Locked Down

The crux of Hayes’s argument rests on a historical analysis of the stablecoin market, which he observes emerged in response to the needs of crypto traders.

As he pointed out, in the 2010s, Tether rose to prominence by partnering with Bitfinex to distribute USDT.

Stablecoins proved hugely popular with traders, and soon other exchanges followed suit, cementing Tether’s central position in the crypto economy.

When Circle arrived on the scene, it differentiated itself foremost as an American issuer.

With USDT operating as the preferred digital dollar on Binance, Bitfinex and other exchanges popular in China and Hong Kong, “Circle’s unsaid message was/is China = Scary; America = Safe,” Hayes argued.

A decade later, USDC has made significant inroads, with Circle and Coinbase replicating the success of the Bitfinex-Tether partnership for the U.S. and Western European markets.

But elsewhere, USDT remains the dominant stablecoin.

Global USDT Adoption

While Asian crypto traders overwhelmingly favor USDT, other stablecoin use cases have emerged in recent years.

These include remittances and retail payments in countries with volatile currencies and poor financial infrastructure. But here too, Tether has an advantage.

In such countries, USDT offers a simple, convenient way to access U.S. dollars. Or, as Hayes put it, “the Global South is banked by Tether.”

Banks and Large Enterprises Will Make Their Own Stablecoins

If Tether has crypto trading (except on Coinbase), remittances and payments in the Global South locked down, the only remaining distribution model available to competitors are institutional ones, Hayes argued.

Circle has long positioned itself as the Wall Street darling of stablecoin issuers, and USDC is arguably the most deeply integrated stablecoin in traditional finance.

But now that banks are starting to get serious about the technology, Hayes believes they will opt to build their own rather than rely on external parties.

For one thing, Bank-issued stablecoins reduce counterparty risk and may even be advantaged by emerging regulations. For another, large stablecoin reserves generate significant revenue for issuers, so why bother outsourcing just to let someone else take all the profit?

(The same logic also applies to social media companies and large retailers like Amazon and Walmart, who are also actively exploring launching their own coins.)

Based on his prediction that banks will ultimately develop stablecoins in-house, Hayes offered a warning: “If you are an investor, run for the hills if a stablecoin issuer promoter claims that they will partner with a legacy bank to push their product out to market.”

A Warning to Investors

Despite the company’s post-IPO rally, Hayes takes a pretty negative view of Circle’s long-term prospects. Neither does he have much faith in any other stablecoin companies that might go public.

Does that mean he won’t be trading CRCL? Not exactly. Hayes suggested that stablecoin stocks could go much higher before the market corrects itself.  And “If there is money to be made, we will be making it,” he stated.

Circle’s IPO “marks the beginning not the end of this cycle’s stablecoin mania,” Hayes said.

“The bubble will pop after the launch of a stablecoin issuer on a public market, most likely in the US, that separates fools from tens of billions of capital by using a combination of financial engineering, leverage and amazing showmanship,” he added.