Foreword
Over the past four months, cryptocurrency has swept through the traditional financial system, penetrating deeper into banking and stock markets than ever before. These dizzying changes have generated billions in profits for the industry while simultaneously introducing heightened risks for investors and regulators.
The pace of transformation has been so rapid it’s hard to keep up. We’ve reviewed the past months to help readers understand the four major trends driving the crypto boom. We’ll also tell you what to watch for in the remainder of the year. Will stablecoins boom or bust? Will more cryptocurrencies trade on stock exchanges? Will stocks trade on cryptocurrency exchanges? Can the good times last?
The biggest factor driving these four trends is President Donald Trump’s support for cryptocurrency. He transformed regulators from opponents into allies and pushed Congress to pass the first-ever cryptocurrency legislation.
The result has been an explosion of cryptocurrency products, trading, and strategies. This shift has reverberated through the stock market, banking, and fintech industries. Here’s what’s happening.
Stablecoin Legislation
Event Recap: In July, President Trump signed legislation addressing stablecoins. Stablecoins are blockchain-based currencies used as cash equivalents in the cryptocurrency market. They represent the cryptocurrency category most closely linked to the mainstream financial system. These tokens are pegged one-to-one to the U.S. dollar, maintaining their value by holding liquid assets like cash and short-term Treasury bills. Similar to money market funds, they typically do not pay interest to investors. Today, cryptocurrency traders primarily use stablecoins to store funds on blockchains as collateral or for international payments.
Importance: New legislation legalizing stablecoins is expected to boost their adoption. This has drawn attention from banks, fintech firms, and payment companies exploring whether stablecoins can enable faster, cheaper transactions than traditional wire transfers. In emerging markets, individuals and businesses are already using dollar-backed stablecoins to hedge against inflation, counter local currency volatility, and receive remittances from family members working abroad.
New regulations may increase demand for Treasury bonds backing stablecoins. Increased stablecoin usage may reduce investor deposits in banks, potentially diminishing funds available for lending.
What’s Next: In the coming months, regulators will negotiate stablecoin regulatory details amid intense lobbying from the cryptocurrency and financial industries. One point of contention is whether crypto platforms can pay yields to investors holding stablecoins. Banking industry groups oppose this, arguing it threatens bank deposits; crypto groups support it, stating they need to offer competitive products.
Additionally, a cryptocurrency bill called the Clarity Act will be introduced in Congress. It aims to establish a regulatory framework for cryptocurrencies and could influence stablecoin rules.
Surge in New Stablecoins
Event Recap: Until recently, only two major stablecoins existed: Tether’s USDT, with a circulating supply of $171 billion, and Circle’s USDC, valued at $74 billion. Now, more stablecoins have emerged, with others in development. Startups, banks, and fintech companies are joining the fray, launching their own dollar-backed stablecoins or integrating with existing ones.
Payment giant Stripe announced plans to launch a blockchain called Tempo, focused on stablecoin transactions for wages and remittances. Banks like BNY Mellon and Morgan Stanley offer asset custody services for stablecoins, while JPMorgan provides deposit tokens representing users’ bank deposits on the blockchain.
Stablecoins are primarily issued by cryptocurrency exchanges, granting them the power to pick winners and losers. Recently, the burgeoning crypto exchange startup Hyperliquid caused industry turmoil by launching a bidding process and allowing users to vote on stablecoin issuers. This has also sparked a race to the bottom that could erode profits for stablecoin providers.
Significance: Widespread adoption of stablecoins means these tokens could be used for payments to merchants and suppliers, multinational corporate treasury management, and interbank settlements. Smaller lenders like Cross River Bank are considering accepting stablecoins directly from their fintech clients.
The surge in stablecoins increases the risk of cryptocurrency volatility spilling over into the traditional financial system. If one stablecoin collapses, it could trigger investor panic and sell-offs of other stablecoins. This could trigger a sell-off of U.S. Treasuries, which underpin both the market and the U.S. economy.
What’s Next: Tether and Circle face pressure from new competitors to maintain their market dominance. Tether is launching U.S. tokens compliant with new stablecoin legislation. Details of stablecoin regulations and cooperation terms between platforms and issuers will determine whether the industry remains profitable or transforms into a commoditized business where only the largest companies earn profits.
Cryptocurrency IPOs
Event Recap: Cryptocurrency companies are going public and reaping huge gains. Stablecoin issuer Circle, blockchain lender Figure, and crypto platforms Gemini and Bullish all saw sharp increases on their first day of trading.
Lawyers say this is partly because the U.S. Securities and Exchange Commission, which has been crypto-friendly under Trump’s leadership, is now giving the green light to cryptocurrency companies seeking IPOs.
Significance: The public market’s enthusiasm for these companies has surprised even crypto insiders. Circle’s stock soared 358% above its June IPO price. Even relatively small, unprofitable exchanges like Gemini saw gains, though its stock has since dipped below the IPO price.
Many of these firms are effectively betting on cryptocurrency trading volume—which is highly volatile—shifting some industry risk to exchanges. Less than three years ago, the collapse of cryptocurrency exchange FTX seemed forgotten by investors.
What’s Next: More IPOs are on the horizon. Cryptocurrency exchanges Kraken and OKX, custodian BitGo, and asset manager Grayscale are preparing for listings, with some expected as early as this year.
While IPOs bring crypto companies to traditional exchanges, the industry’s next goal is to trade stocks on crypto exchanges. Their aim is to place shares on the blockchain via crypto tokens representing investments in companies like Tesla, Nvidia, and Circle. Firms like Robinhood, Kraken, and Galaxy Digital are pushing tokenized stocks, particularly among overseas crypto users who may lack access to U.S. markets.
Stocks Flooding into Cryptocurrency
Event Recap: The most mind-boggling development has been the convergence of meme stocks and speculative cryptocurrencies. It began with Strategy (formerly MicroStrategy), a publicly traded software maker that snapped up $75 billion worth of Bitcoin, positioning itself as the stock market’s crypto proxy.
This strategy spread among small-cap stocks vying to become vehicles for various tokens, including Ethereum, Solana, Dogecoin, and the Trump family’s World Liberty token.
According to crypto advisory firm Architect Partners, over 130 U.S. public companies have announced plans this year to raise more than $137 billion to purchase cryptocurrencies.
Significance: This signals more crypto-related stock offerings. Many are established through complex private financing deals. These stocks often surge upon trading commencement, allowing crypto token holders to sell at premium prices to public investors.
This isn’t good news for investors. Among 35 such stocks tracked by Architect, the average return since announcing crypto purchase plans stands at -2.9%. On the first trading day after the announcement, these stocks fell by 20.6%.
What’s Next: Many of these crypto stocks, particularly Strategy, have market capitalizations far exceeding the value of their cryptocurrency holdings, largely due to investor fervor chasing meme coins. Investor demand has enabled these companies to efficiently raise funds and purchase more cryptocurrency.
However, the market capitalization of these companies relative to the value of their cryptocurrency holdings has begun to decline. This makes it harder for them to raise funds and may force them to halt cryptocurrency purchases. The factors driving stock price increases could start to reverse.
Meanwhile, Nasdaq is tightening scrutiny of these offerings, requiring shareholder approval in some cases.
