Stablecoin Boom Drives 500% Surge in Circle Stock, Concerns Grow

The global market has witnessed a significant surge in stablecoins, driving up the stock prices of related emerging technology companies. This trend has raised concerns among some investors about the potential for a valuation bubble. Circle, often referred to as the "first stablecoin stock," has seen its stock price soar by approximately 500% since its listing on the New York Stock Exchange three weeks ago. However, short positions in Circle have also been steadily increasing, indicating a level of caution among traders.

In Korea, both global and local funds have been selling off Kakaopay Corp. shares, which have doubled in value over the past month. This cautious trading behavior contrasts sharply with the frenzied retail trading activity. Despite regulatory and financial industry skepticism, the strong support from the has fueled the stablecoin boom.

The chief investment officer of a Seoul-based asset management firm noted that the current situation resembles the frenzied buying of metaverse-related stocks by retail investors in 2020 and 2021. This phenomenon is more about betting on government policies and is driven by emotions rather than fundamental factors.

The momentum behind stablecoins continues to grow, with regulatory frameworks also evolving. This month, the U.S. Senate passed legislation related to stablecoins, although it has yet to be approved by the House of Representatives. The region has also seen legislative progress, with a stablecoin bill passed in May. The President has pledged to allow domestic companies to issue such tokens.

Circle's successful listing has been a significant driver of this trend. By market share, Circle's USDC is the second-largest stablecoin, trailing only Tether, which is operated by a non-listed company. Circle's market capitalization has surpassed 400 billion, exceeding more than half of the companies in the S&P 500 index. The rapid rise of Circle has led some traders to bet on a potential decline in its stock price, with short positions now accounting for more than 25% of its outstanding shares.

Kakaopay, which listed in Seoul this year, has outperformed all its peers in the FTSE Global Financial Technology and Blockchain Index, with gains nearly double those of Robinhood. While retail investors have been buying the stock, institutional investors both domestically and internationally have been net sellers.

Analysts from a major global bank recently stated that while there is long-term potential, "this opportunity is still in its early stages, and the timing and ultimate user acceptance are uncertain." They rated Kakaopay as a "sell," citing its high valuation.

The rally in stablecoin-related stocks is spreading globally, driving up the share prices of Kakaopay's parent company and its competitors. In the U.S., the stock prices of Circle's peers, such as Coinbase, have also risen.

However, despite support from leaders, risks remain. The central bank has warned that the adoption of stablecoins could hinder effective monetary policy. The Bank for International Settlements has stated that the future of stablecoins is "uncertain."

Many still believe that the technology has potential in stabilizing cryptocurrency transactions and storing value. However, the high valuations of related stocks have raised questions. Last Friday, Kakaopay's stock fell 10% after a brief halt in trading, as regulators reminded investors to exercise caution in such a rapid rally.

A stock investment manager from a Seoul-based asset management firm stated, "Stablecoins are a very important theme, despite the risks. It is too early to judge whether the stock prices of related companies are reasonable or to evaluate their valuations, but in any case, stablecoins will be issued, and the issuers will reap tens of billions of dollars in profits."