Stablecoins Sweep Wall Street, A Financial Storm is Brewing!

Yesterday, stablecoin concept stock Circle surged again by 33.82%. Since its listing on the New York Stock Exchange on June 5, Circle's stock price has skyrocketed from its issue price of $31 to $200, an astonishing increase of 6.5 times.

The reason Circle is so popular is that the company has issued a digital currency called USDC, which sounds a bit mystical, but you just need to know that it is a form of 'digital dollar', with one USDC equal to one dollar. The 'digital dollar' is considered a significant 'innovation' in the U.S. financial industry in recent years, and many people are eager to see it help the U.S. government solve its 'excessive debt' problem.

Why has BCircle become so popular?

You might be wondering, digital currencies already exist; we had digital renminbi a few years ago. Why is a company like Circle that issues 'digital dollars' so impressive?

First, it has caught a good opportunity! Just before Circle went public, the U.S. Congress happened to pass a law regarding 'digital dollars'. This is like issuing an 'ID card' to Circle, essentially providing official endorsement: this is a regular army of digital dollars.

Secondly, Wall Street bigwigs are also interested! Major capital firms like JPMorgan and Goldman Sachs have been very supportive of Circle's listing.

Finally, stablecoins do have dollar backing. Previously, people thought digital currencies were just speculation with high risks. But USDC, this 'digital dollar', is different; it emphasizes that it is 'fully backed' one-to-one, meaning for every USDC you hold, there is an equivalent amount of real dollars supporting it. This makes it particularly convenient for international transfers and online payments, being much faster and cheaper than traditional bank transfers.

Because of this, the cryptocurrency trading platform Coinbase also surged by 16.3% on May 18, becoming the strongest performer in the S&P 500 that day. This is because half of Circle's revenue from issuing digital currency has to be shared with the trading platform Coinbase, and Coinbase announced support for USDC collateral trading, also venturing into the digital dollar payment field, launching Coinbase Payments aimed at business platforms, with various favorable policies coming in.

B Stablecoins: Are they going to revolutionize traditional payments?

The stablecoin forces represented by Circle, Coinbase, etc., are not only becoming popular themselves; they are quietly bringing a major transformation to the financial industry.

American payment platforms will face challenges. In the international payment market, PayPal, Alipay, WeChat Pay, etc., have already eaten into a large portion of the cross-border payment market, while Visa and MasterCard are heavily pressured and will face further encroachment from stablecoins. Now, stablecoins backed by dollars transfer directly through blockchain technology, being fast and cheap, even without transaction fees, leading to significant declines in stock prices of traditional payment companies like Visa, MasterCard, and PayPal after the stablecoin bill passed.

However, these traditional platforms are already brewing rapid transformations. Visa and MasterCard are starting to figure out how to 'collaborate' with stablecoins, such as helping banks issue their own 'digital dollars', and even finding ways to link your credit card with stablecoins. PayPal is also researching how to use stablecoins to assist merchants in international payments. In the face of new technological impacts, traditional giants are also striving to adapt and change to avoid being eliminated.

In short, the emergence of stablecoins is like giving a dose of 'steroids' to the traditional financial system, which is slow and expensive, enabling faster and cheaper capital flow. In the conservative and stable American financial industry, this is already a revolution in efficiency and cost.

B Can the 'digital dollar' help the U.S. solve its debt crisis?

We know that USDC, this 'digital dollar', is backed one-to-one by real dollars or U.S. Treasury bonds. This means that for every additional USDC issued, there might be an additional Treasury bond purchased. Does this mean that as long as 'digital dollars' are issued in sufficient quantities, more funds can be used to purchase U.S. Treasury bonds? Theoretically, as long as digital dollars are issued sufficiently, they could also help the U.S. government pay off its debts.

But in reality, the U.S. debt issue is not that simple; digital dollars are just a temporary fix.

First, digital dollars are merely changing the appearance of money: stablecoins do indeed purchase U.S. Treasury bonds, but this just transforms existing dollars in the market into another form (Treasury bonds). They cannot replace the Federal Reserve's currency issuance function or magically create money to pay debts, nor can they change the fundamental problem of the U.S. government spending more than it earns.

Secondly, the function of digital dollars is to improve the efficiency of capital flow and can create a portion of broad money, but it cannot truly 'print money': stablecoins can make financial transactions smoother and cheaper. A more efficient economy can theoretically generate more tax revenue, which may indirectly alleviate some of the government's fiscal pressure. However, it is by no means a tool for the U.S. government to casually 'print money' to pay debts; the Federal Reserve cannot do it, and neither can digital dollars.

Moreover, the digital dollar itself also carries risks: while stablecoins are stable, it depends on the stability of the assets backing them. The dollar itself has depreciation expectations. If at some point the collateral assets encounter problems or regulatory policies tighten suddenly, the stablecoin may also face issues. At that time, it may not only be unhelpful but could also create chaos.

So, stablecoins are like a 'handy hammer' that can help the U.S. financial industry nail things down quickly and steadily, but it cannot change the long-standing reality of the U.S. government spending more than it earns. To solve the national debt issue, the U.S. government needs to work on the fundamental problems of 'increasing revenue and reducing expenditure'—that is, finding ways to earn more and spend less—and must strive to maintain GDP growth rates above the growth rate of debt to avoid bankruptcy.