Passage of landmark new crypto legislation (the Genius Act) has led to a surge of positive sentiment about stablecoins. Some investors now think they have the potential to disrupt entire industries.
Although some of this hype and buzz may be overblown, investors still need to pay attention. Here are three key ways that stablecoins could influence your investment strategy.
1. Impact on the business models of top companies
Stablecoins, which are cryptocurrencies pegged 1:1 to a fiat currency such as the U.S. dollar, have the potential to affect the business models of companies that have nothing to do with crypto or blockchain.
Image source: Getty Images.
Take retail, for example. A handful of top retailers -- including Amazon and Walmart -- are now exploring stablecoins as a way of cutting down on credit card processing fees. At some point in the not-so-distant future, you might be paying for your online purchases with stablecoins, rather than credit cards.
Or what about the financial services industry? Visa is a prime candidate for disruption, so it is already taking steps to prepare for the stablecoin era. And Western Union is also preparing for the day when customers use stablecoins rather than dollars to send cross-border remittances.
So get ready to hear a lot about stablecoins on analyst calls and at investor conferences. After asking questions about the impact of artificial intelligence (AI), investors and analysts might start to ask about the impact of stablecoins. At the very least, investors need to understand how stablecoins might change or disrupt existing business models.
2. New stablecoin launches
Also, get ready for a deluge of new stablecoin launches from some unlikely names. And it won't just be banks or financial institutions issuing them. Under the Genius Act, even nonbanks will be able to issue them. And that could really open the floodgates.
Right now, Tether (USDT 0.02%) and USDC (USDC -0.00%), the stablecoin issued by Circle Internet Group (CRCL -0.17%), account for a whopping 90% of the $250 billion stablecoin industry.
According to the latest Motley Fool stablecoin research, Tether and Circle are smaller than the biggest national banks, but larger than typical midsized brokerages. So, they're definitely, a force to be reckoned with.
Right now, I'm partial to USDC, because it's the unofficial stablecoin of Coinbase Global (COIN -1.26%), which has a partnership agreement with Circle. I also am confident that it will never lose its peg to the U.S. dollar. I wouldn't have as much confidence in smaller stablecoins without such a proven track record or as many key partners.
It's easy to see how this industry will become a lot more fragmented very soon, making it potentially even more confusing for the average investor. In June, Fortune reported that Apple, Airbnb, X, and Alphabet were exploring stablecoin launches. So, if you're an Apple fan, you might want to own an Apple stablecoin. The same is true if you're an Elon Musk fan -- wouldn't you want to own a cool new X stablecoin?
3. Ethereum
Finally, there's the matter of which blockchain will emerge as the dominant platform for stablecoins. Presumably, investors will flock to blockchains that are seeing the most success with stablecoins. That's because stablecoins are key building blocks for everything that happens in blockchain finance. So the most popular blockchains for stablecoins should also get the highest valuations.
Currently, Ethereum (ETH 1.11%) is getting a lot of buzz because it accounts for 49% of the stablecoin market. According to investment strategist Tom Lee of Fundstrat, stablecoins are going to create a "ChatGPT moment" for Ethereum, with the potential to really light a fire under its price. With that in mind, it's easy to see why high-profile investors such as Peter Thiel are now starting to increase their exposure to Ethereum as a way of investing in stablecoins.
But Ethereum hardly has a monopoly on stablecoins. All Layer-1 blockchains, if they can support smart contracts, should also be able to support stablecoins. And that creates the opportunity for relatively unknown names to really pop.
According to CoinGecko, Tron (TRX 1.10%) has a 34.1% share of the stablecoin market. By way of comparison, Solana (SOL 0.34%) only has a measly 2.2% share. If you think that stablecoins are the future, then Solana (with a $100 billion valuation), might be way overvalued compared to Tron, which has a $30 billion valuation.
What's the best way to play the stablecoin trend?
It's obvious that there are a number of different ways to play the stablecoin trend. The easiest way is to invest in the issuers of stablecoins, such as Circle. That gives you maximum exposure to any potential upside. You could also invest in blockchains such as Ethereum that are dominant in stablecoins, with the expectation that their values are going to soar.
By the end of 2025, investing in stablecoins could get very interesting. What if a popular company like Amazon, Apple, or Alphabet decides to launch a stablecoin? It might fundamentally alter the way investors view these companies.
That's why, even if you've never paid attention to stablecoins before, you should now. Very soon, they're going to become impossible to ignore.
