Sign In with Google
Sign In with Facebook
Potential Regulatory Challenges for USDC
Circle’s stablecoin, the USD Coin (USDC), along with other stabilities, may have to navigate through potential regulatory hurdles if a newly passed national defense bill by the United States Senate becomes law. Berenberg analyst, Mark Palmer, highlights in an investment note dated July 31, that new Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures might be introduced by a recent addition to the 2024 National Defense Authorization Act (NDAA). He opines that such measures may be impossible for issuers of stablecoin to comply with.
He points out that the amendment would make it mandatory for the U.S. Treasury Secretary to set “evaluation norms for crypto assets.” These would aid regulators to ascertain compliance with money laundering and sanctions rules. The identities of stablecoin holders, Palmer adds, can only be recognized when the asset is issued and redeemed, an aspect that might lead to a further decline in USDC's market cap, which has already been decreasing, and dropped around 39% or $17.5 billion since March 5th.
Implications for Coinbase
The fallout of such an amendment may not just affect Circle, it could also be a cause for concern for Coinbase. Palmer pointed out that 27% of Coinbase's net income in Q1 this year came from USDC interest. Since 2021 began, shares of Coinbase have far surpassed the typical equities market with a massive 170% rise from $33 on January 1st to nearly $99 as of now.
Key Factors Driving Coinbase’s Growth
Two main factors contributed to this surge, according to Berenberg; the first being the favorable ruling received by Ripple Labs and the second, the inundation of applications for spot Bitcoin ETFs from leading firms such as BlackRock and Fidelity. However, a recent statement from SEC Chair Gary Gensler could destabilize these growth drivers, with him reaffirming the SEC's authority over cryptocurrencies in an interview on July 28th. Additionally, analysts interpreted Gensler's lukewarm response to a query about Bitcoin ETF applications as a sign that he might be against their endorsement.
In conclusion, Berenberg kept its “hold” designation for Coinbase stock, citing ongoing “considerable uncertainty.” Nonetheless, the analysts suggested the substantial cash reserves and equivalents provide the company with "buffer and adaptability" to ensure its continued financial viability.
