Legislation, Stablecoins, IPOs, Treasury - Cryptocurrency is Disrupting the U.S. Financial Market

From stablecoin legislation, the surge of emerging stablecoins, to the IPO boom of cryptocurrency companies, and the large-scale acquisitions of crypto assets by traditional stock companies, these four trends have integrated cryptocurrencies into the traditional financial system with unprecedented depth and breadth, creating billions of dollars in profits for the industry while also bringing new risks to investors and regulators.

In July this year, Wall Street News mentioned that U.S. President Trump signed the first cryptocurrency bill passed by Congress, providing a legal framework for stablecoins. Subsequently, banks, fintech companies, and payment giants have entered the fray, exploring the potential of stablecoins to reduce transaction costs and enhance efficiency.

At the same time, cryptocurrency companies have sparked a wave of IPOs and have been well-received in the public market. More notably, some listed companies have begun to allocate a significant portion of their corporate treasury to cryptocurrencies like Bitcoin, closely linking their stock prices to the volatility of cryptocurrencies.

However, this rapid integration has also brought new challenges. The expansion of stablecoins may affect banks' deposit bases and lending capabilities, posing systemic risks. The high volatility behind cryptocurrency company IPOs, as well as the actual losses incurred by secondary market investors due to the "crypto treasury" strategies of listed companies, indicate that this cryptocurrency-driven financial transformation is far from settled.

Legislative Breakthrough Validates Stablecoins

In July this year, President Trump signed a bill regarding stablecoins, marking the first national-level legal recognition in the cryptocurrency field.

Stablecoins are blockchain tokens pegged one-to-one to fiat currencies like the U.S. dollar, maintaining their value through holding liquid assets such as cash and short-term U.S. Treasury bonds, functioning similarly to money market funds.

This legislative breakthrough greatly enhances the legitimacy of stablecoins and opens the door for their broader application.

Banks, fintech, and payment companies are beginning to closely monitor and explore the use of stablecoins for faster and cheaper transactions compared to traditional wire transfers.

In some emerging markets, U.S. dollar stablecoins have been used to hedge against inflation and avoid local currency fluctuations. This move may also boost the demand for U.S. Treasury bonds, which are the primary reserve assets for stablecoins, but on the other hand, the proliferation of stablecoins may divert traditional bank deposits, thereby affecting banks' lending capabilities.

Next, U.S. regulators will negotiate the regulatory details under intense lobbying from both the cryptocurrency industry and traditional finance.

One of the contentious points is whether crypto platforms can pay interest to stablecoin holders. Banking groups oppose this, citing threats to their deposit bases, while the crypto community hopes to offer competitive products through this.

New and Old Forces Compete in the Stablecoin Market

With the legislative wind at its back, the stablecoin market has rapidly expanded, no longer dominated solely by Tether's USDT (circulation of $171 billion) and Circle's USDC (circulation of $74 billion).

Startups, banks, and fintech giants are all entering the market, either launching their own U.S. dollar stablecoins or integrating with existing stablecoins:

• Payment giant Stripe announced the launch of a blockchain called Tempo, focusing on stablecoin transactions in areas such as payroll and remittances.

• Banks like BNY and Goldman Sachs have begun offering management services for stablecoin reserve assets.

• JP Morgan has launched a "deposit token" representing users' bank deposits.

This increasing acceptance paves the way for the application of stablecoins in merchant payments, multinational corporate treasury management, and interbank settlements.

However, the influx of new participants has intensified competition.

Reports indicate that the emerging crypto exchange Hyperliquid has recently selected stablecoin issuers through bidding and user voting, triggering a competition that could compress issuers' profits.

More importantly, the proliferation of stablecoins increases the risk of volatility in the crypto market spilling over into the traditional financial system. The collapse of any stablecoin could trigger a crisis of confidence among investors, leading to a run on other stablecoins and ultimately resulting in the sell-off of U.S. Treasury bonds, which are the cornerstone of the global financial market.

IPO Boom Pushes Crypto Companies to the Public Market

As the regulatory environment becomes more favorable, crypto companies are experiencing a wave of IPOs.

Stablecoin issuer Circle, blockchain lending company Figure, and crypto platforms Gemini and Bullish all recorded significant stock price increases on their first day of trading. Legal experts point out that the U.S. Securities and Exchange Commission (SEC), which has become friendly to the crypto industry under Trump, is giving the green light for these companies' IPO applications.

The public market's enthusiasm for these companies has even exceeded industry insiders' expectations, with Circle's stock price soaring 358% since its IPO in June.

However, this phenomenon means that the risks of the crypto industry are being transferred to stock exchanges. The valuations of these companies are often tied to the highly volatile trading volumes of cryptocurrencies, and investors seem to have forgotten the lessons from the collapse of the crypto exchange FTX less than three years ago.

This IPO boom is still ongoing. Crypto exchanges Kraken and OKX, custodial firm BitGo, and asset management company Grayscale are preparing to go public, with some expected to complete the process within the year.

Meanwhile, the crypto industry is pushing towards its next goal: tokenizing stocks and trading them on crypto exchanges.

Companies like Robinhood, Kraken, and Galaxy Digital have begun preliminary attempts to promote tokenized securities representing exposure to stocks like Tesla and Nvidia to overseas users who may not have access to the U.S. market.

"Treasury" Becomes "Coin Vault": Public Companies Embrace Crypto Assets

One of the most surprising market trends this summer is the fusion of "MEME stocks" with speculative cryptocurrencies.

Software manufacturer Strategy (formerly Microstrategy) is the pioneer of this model, transforming itself into an agent for Bitcoin in the stock market by purchasing $75 billion worth of Bitcoin Today, this strategy is being replicated by a large number of small publicly listed companies.

According to data from the cryptocurrency consulting firm Architect Partners, more than 130 U.S. listed companies have announced plans this year to raise over $137 billion to purchase various cryptocurrency assets, including Ether, Solana, Dogecoin, and even the World Liberty token issued by the Trump family.

However, this strategy has not provided good returns for secondary market investors. The 35 related stocks tracked by Architect Partners show:

• From the date of announcing the cryptocurrency purchase plan, the median return of these stocks is -2.9%.

• After the first trading day following the announcement, the median return further dropped to -20.6%.

As the hype cools down, the market capitalization of these companies has begun to decline relative to the value of their held cryptocurrency assets, weakening their ability to continue financing the purchase of cryptocurrencies.

Meanwhile, Nasdaq is strengthening its scrutiny of such financing, in some cases requiring shareholder approval. Factors that once drove up stock prices may now begin to have the opposite effect