Stablecoins will Supercharge Cryptos Adoption

CME: Micro Bitcoin Futures ( MBT1!), #microfutures
On June 5th, Circle Internet Group ( CRCL), issuer of the #USDC #stablecoin, debuted its initial public offering at $31 per share. By June 23rd, CRCL prices peaked at $298.99, up nearly ten folds in just 13 trading days.

At Friday's closing of $180.43, Circle has a market cap at $40.2 billion. Wall Street gave a mindboggling price earnings ratio of 234, based on Circle’s $0.77 earnings per share.

How to Invest in Stablecoins
Stablecoins are cryptocurrencies that aim to maintain price stability. Both USDC and #USDT (issued by #Tether) peg their value to the US dollar. Paying $1 for 1 stablecoin, you will get exactly $1 back in one month, one year, or ten years. Unlike buying Bitcoin, there is no investment return for holding stablecoins. So why would anyone want them?

Because stablecoins are not investment instruments, instead, they are payment methods. Like PayPal and Apple Pay, USDT and USDC enable users to move money fast and cheaply globally, but now in the crypto world.

How do stablecoin issuers make money? They generate revenue through interest on reserves, transaction fees, lending, and partnerships with financial institutions.
• The biggest source of revenue is interest income. When it comes to stablecoin issuers, size matters, and the Fed matters.
• Based on a study by Artemis, Castle Island Ventures, and Dragonfly on May 29th, USDT and USDC have a combined market capitalization of over $214 billion.
• With the Fed Funds rate averaging above 5% last year, the $214 billion reserve investing in Treasury and other high-quality bonds could yield at least $12 billion between Tether and Circle.
• Tether reported 2024 profit of $13 billion, while Circle generated $1.68 billion last year.

Investing in stablecoins means buying Circle stock, not converting cash into USDC. The difference is like buying Apple stock vs. adding money in your Apple Pay account.

Headwinds and Tailwinds
On June 17th, the US Senate passed the GENIUS Act of 2025. It establishes a regulatory framework for the $250 billion market for stablecoins. “Stablecoins are a paradigm-shifting development that can bring our payment system into the 21st century", declared Sen. Bill Hagerty of Tennessee, who introduced the bill.

With regulatory certainty, real-world utility and adoption will quickly follow. The future for stablecoins is very bright, and I expect the market size to double soon. However, market leaders Tether and Circle both face strong headwinds going forward.
• Real world utility brings in fierce competition. Big banks and credit card issuers will create their own stablecoins to keep customers on the book. This will slow down Tether’s and Circle’s efforts to attract mainstream financial investors.
• I expect the Fed to cut interest rates by a lot during the remaining 3-1/2 years of the Trump Administration. Some cuts will happen under the current Fed Chair. A lot more will come by his successor beginning June 2026. Lowering interest rates by 100-200 basis points will cripple stablecoin issuers’ main income.

In my opinion, the high dependency in growth and interest rate policies make CRCL a very risky investment at the current lofty valuation.

Bullish Signal for Bitcoin
In the past, stablecoins were mainly used by crypto investors. Going forward, mainstream investors will find compelling offerings from their banks, stockbrokers and credit card companies. When mainstream financial intermediaries begin making serious inroad into cryptos, there will be a paradigm shift.

In my opinion, the new development in stablecoins will supercharge the growth of crypto market size. Bitcoin, being well established as a Digital Gold, will benefit the most from the global asset reallocation to cryptocurrencies.

An investor sharing a bullish view on bitcoin could explore the CME Micro Bitcoin Futures (MBT).

Last Friday, the August MBT contract (BTCQ5) was settled at 108,640. Each contract has a notional value of 0.1 bitcoin, or a market value of $10,864. To buy or sell 1 contract, trader is required to post an initial margin of $2,598. The margining requirement reflects a built-in leverage of 4-to-1, which is more cost-effective that buying bitcoins from any ETF fund.

A long MTC strategy with a stop-loss would enhance the returns while limiting the potential losses. Below is a hypothetical trade for illustration purposes only:

On Day T+0, buy 1 BTCQ5 at 108,640 and set a stop loss at 105,000
• The portfolio value is 10,864
• Upfront margin is $2,598

Rising Bitcoin Scenario: On Day T+N, Bitcoin goes up 20% to $130,368
• Futures gain will be $2,172.8 (= (130368-108640) x 0.1)
• Investment return will be +86.6% (= 2172.8 / 2598), excluding transaction fees
• This compares to a 20% gain with bitcoin ETF, with no leverage

Falling Bitcoin Scenario: On Day T+N, Bitcoin drops 20% to $86,912
• With a stop-loss at 105,000, losses will be capped at $364 (= (108640-105000) x 0.1)
• Investment return will be -14% (= -364 / 2598)
• This compares to a 20% loss with bitcoin ETF, with no stoploss provision

Happy Trading.

Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.