Stablecoin Surge Drives Notable Stock Gains, Prompting Investor Concerns

Many investors are growing more cautious regarding the global stablecoin trend, resulting in notable gains for firms linked to this new technology.

Short selling on Circle Internet Group is increasing, even though its stock has surged around 500% since debuting in New York just three weeks ago. In South Korea, various local and global funds have sold off shares in Kakaopay Corp., whose stock value has tripled over the past month.

This cautious approach to trading sharply contrasts with the rampant retail enthusiasm growing as governments in the US and elsewhere move to legitimize stablecoins—cryptocurrencies linked to assets like the dollar. Support from figures such as Donald Trump has driven this excitement, despite concerns about regulations from both government and financial sectors.

“This reflects the indiscriminate buying of metaverse-related stocks by retail investors back in 2020 and 2021,” said SeokKeun Ha, chief investment officer at Eugene Asset Management in Seoul. “This fundamentally is a gamble on government policy,” powered more by public sentiment than by concrete fundamentals.

Regulatory frameworks are evolving, indicating growing acceptance for stablecoins. This month, the Senate passed stablecoin legislation, which still requires approval from the House. In May, Hong Kong’s legislature endorsed a stablecoin bill, and South Korean President Lee Jae Myung has pledged to permit local companies to issue these tokens.

Additionally, the progress of the Trump-supported GENIUS Act in Congress and Circle’s remarkable listing are key developments. Circle’s USDC is now the second-largest stablecoin by market share, trailing only Tether, managed by an unlisted firm based in El Salvador.

Circle’s market capitalization has soared past $40 billion, eclipsing numerous companies in the S&P 500 Index. This swift growth has prompted some traders to bet against the stock, with short interest rising steadily to over 25% of the free float, as per S&P Global data.

Kakaopay’s shares listed in Seoul are outperforming all competitors in the FTSE Global Fintech & Blockchain Index this year, nearly doubling the gains of Robinhood Markets Inc. However, while retail investors have joined the surge, both domestic and international institutions have been net sellers.

Despite the potential for long-term growth, analysts John Yu and Alicia Yap from Citigroup Inc. stated in a recent report that “the opportunity is still in its early stages, with uncertain timing and low visibility on end-user adoption.” They have advised a sell rating for Kakaopay, expressing concerns over high valuations.

The gains linked to stablecoins are spreading through global markets, benefiting Kakaopay parent Kakao Corp. and its rival Naver Corp. Circle’s counterparts, such as Coinbase Global Inc., are also experiencing price increases in the US. In Hong Kong, smaller brokerages like Guotai Junan International Holdings Ltd. and China Everbright Ltd. have likewise surged as part of this trend.

However, risks remain, despite high-profile endorsements from leaders like Trump and Lee. The Bank of Korea has warned that stablecoin adoption may disrupt effective monetary policy and has temporarily paused its central bank digital currency initiative. The Bank for International Settlements has asserted that the future of stablecoins is still “unclear.”

While many still see potential in this technology as a means to stabilize transactions and retain value in the crypto realm, significant worries linger over whether related stocks might have already hit their peak. Kakaopay shares have decreased roughly 20% over two sessions following a temporary suspension last week, as regulators indicated a need for caution regarding the rapid rally.

“Stablecoins present a crucial concern, though they are a risky investment,” remarked Cha So-Yoon, an equity investment manager at Taurus Asset Management in Seoul. “It’s indeed too early to determine if the stocks are fairly valued, but one way or another, stablecoins will be rolled out, and the issuers are likely to gain immensely while remaining inactive.”

© 2025 Bloomberg

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