Arthur Hayes Cautions That Circle’s IPO Might Trigger a ‘Stablecoin Mania’ Bubble

Arthur Hayes, the former CEO of BitMEX, has expressed concerns that Circle’s recent initial public offering (IPO) may trigger a “stablecoin mania,” urging investors to prepare for possible drastic outcomes.

In a recent essay on his Substack, Hayes’ cautionary outlook diverges from optimistic trends indicating that the stablecoin market capitalization has reached an all-time high of $228 billion.

The Distribution Challenge

In the piece published on June 17, the crypto pioneer characterized Circle’s IPO, which raised over $1.1 billion, as “grossly overvalued.” He suggested that this listing marks the inception of a speculative wave that will likely result in substantial financial losses.

“The bubble will burst with the debut of a stablecoin issuer in the public market, probably in the U.S., that exploits intricate financial maneuvers, leverage, and captivating marketing to divert vast amounts of capital,” Hayes forecasts.

Central to his argument is a key criterion for the longevity of any stablecoin: achieving wide distribution.

“When considering an investment in a stablecoin issuer, the essential question is: how will they effectively distribute their product?” Hayes emphasized.

He argued that established financial entities and dominant crypto trading platforms like Coinbase have effectively taken control of the necessary distribution avenues. As such, he believes that newcomers will encounter significant obstacles in mirroring the accomplishments of established players like Tether (USDT).

Hayes posits that social media giants and conventional banks are approaching a critical juncture brought on by efficient stablecoins, which are likely to create their own exclusive solutions and marginalize outside collaborations.

He highlighted Tether’s remarkable profitability, derived from the yield on U.S. Treasury investments, as a compelling factor driving the forthcoming surge in inflated IPOs, even with a limited distribution environment.

“The stablecoin narrative stands out as it presents the largest and most evident total addressable market for a TradFi participant,” he noted, recognizing the appeal while warning of a “path to ruin” for investors in new stablecoin issuers that lack the network advantages of Tether or Circle’s tie with Coinbase.

Thriving Stablecoin Sector

Hayes’ caution emerges amid undeniable growth within the broader market. Reports indicate that the stablecoin market cap has surged by 17% year-to-date (YTD), gaining $33 billion to reach $228 billion.

USDT experienced a boost of over 13% in its market cap during this timeframe, climbing past $155 billion. In addition, USDC appears to have recovered from the impacts of its 2023 depegging incident linked to the failure of Silicon Valley Bank, jumping 39% to reach $61 billion.

Exchanges are seeing a significant influx of liquidity, highlighted by ERC-20 stablecoin reserves totaling around $50 billion, while yield-generating stablecoins are rebounding to $6.9 billion.