BitMEX Founder Warns of Overvalued Stablecoin IPOs Amid Market Mania

Arthur Hayes, the founder of BitMEX, has cautioned about the upcoming wave of new stablecoin companies aiming to emulate Circle’s successful public offering. Hayes believes that while Circle’s IPO marks the beginning of "stablecoin mania," many of these new public stablecoin companies are likely to be overvalued and ultimately fail. He predicts that the bubble will burst once a stablecoin issuer, leveraging financial engineering, leverage, and showmanship, separates investors from billions of dollars.

Hayes advises traders to approach these new stablecoin IPOs with caution, likening the strategy to trading a "hot potato." He emphasizes that while the initial sentiment and narrative around stablecoins may drive prices up, investors should avoid shorting these stocks. The upcoming vote on key stablecoin legislation in the US Senate could further fuel this narrative if it passes, according to Chainlink co-founder Sergey Nazarov.

The fundamental challenge for any stablecoin issuer, according to Hayes, is distribution. He identifies three viable channels: crypto exchanges, Web2 social media giants, and legacy banks. Without access to these channels, new stablecoin issuers face significant hurdles. Existing players have already locked up these distribution channels, forcing new entrants to pay substantial fees or yield to depositors. Additionally, social media companies and banks are likely to develop their own stablecoins, further complicating the landscape for new issuers.

Hayes criticizes Circle (CRCL) as being "insanely overvalued," noting that it hands over 50% of its interest income to Coinbase. Despite this, he expects Circle’s price to continue rising due to the current market sentiment. Circle completed its IPO on June 5, with its share price surging by the end of the trading session. Since its listing, CRCL has seen significant gains, hitting an all-time high of just below $165 on June 16.

Hayes’ warnings underscore the speculative nature of the stablecoin market and the challenges faced by new entrants. His advice to trade these new IPOs like a "hot potato" reflects the high-risk, high-reward environment of the crypto market. Investors are urged to be cautious and strategic in their approach, recognizing the potential for both significant gains and substantial losses.