BitMEX co-founder Arthur Hayes says Circle’s successful initial public offering (IPO) may have ignited the next major bubble in the crypto market.
In a new blog post, Hayes warns that Circle’s stock market debut has marked the beginning of a “stablecoin mania” that he thinks will fleece investors who get caught up in the hype.
According to the crypto veteran, Circle’s success will inspire a wave of new stablecoin issuers looking to capitalize on the hype, luring investors with promises of massive growth.
“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…
A very bankable charismatic individual will get on stage and spew all sorts of nonsense, wave his (most likely a male) hands to and fro, and convince you why the leveraged piece of dogshit he is selling is about to corner the multi-trillion dollar stablecoin total addressable market (TAM).”
Hayes notes that the extent of the damage from the looming stablecoin mania will largely hinge on how the US chooses to regulate the sector.
“The more freedom allowed to issuers in terms of what backs a stablecoin and whether they can pay yield to holders, the more financial engineering and leverage that can be used to mask a t*rd. If you assume a light to no touch stablecoin regulatory regime, then you could get a repeat of Terra/Luna in that an issuer creates some fugazi algorithmic stablecoin Ponzi. The issuer can pay high yield to holders and the yield comes from applying leverage to some holdings of assets.”
In 2022, the Terra ecosystem collapsed after its algorithmic stablecoin LUNA lost its peg to the dollar, wiping out $40 billion in market value.
For those looking to invest in other stablecoin issuers, Hayes says to keep a close watch on the project’s distribution channels.
“If you stop reading here, the only question you must ask yourself when evaluating an investment in a stablecoin issuer is this: how will they distribute their product? To distribute at scale, and by that, I mean have the ability to reach millions of users affordably, an issuer must use the pipes of a crypto exchange, a Web2 social media Goliath, or a legacy bank. If they have no distribution, they have no chance of success.
And if you can’t easily verify that said issuer has the access to push product through one or more of these channels, run away!”
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