The passage of a new defense bill by the US Senate has raised concerns for stablecoins like Circle's dollar coin, USDC, as well as other stablecoin issuers. Berenberg analyst Mark Palmer detailed these concerns in an investment note dated July 31. The amendments pro posed in the 2024 National Defense Authorization Act (NDAA) would potentially introduce stringent know-your-customer (KYC) and anti-money laundering (AML) measures for stablecoin issuers, posing a compliance challenge.
According to Palmer, the amendments would require the US Treasury Secretary to set standards for reviewing crypto assets, ensuring compliance with money laundering and sanctions regulations. However, this poses a problem for stablecoins as the identities of their holders are typically known only at the point of issuance and redemption. This could negatively impact USDC's market capitalization, which has already been declining, losing about 39% since March 5.
The decline in USDC's market cap could not only affect Circle but also have implications for Coinbase. Palmer highlighted that a significant portion of Coinbase's net income in the first quarter of the year came from interest income generated by USDC. Given that Coinbase shares have s surged significantly This year, rising from $33 to $98.61 as of the note's publication, this development could be a challenge for the platform.
Berenberg analysts attribute Coinbase's strong performance earlier in the year to a favorable ruling for Ripple Labs and the filing of spot Bitcoin ETF applications by major institutions like BlackRock and Fidelity. However, these factors have faced uncertainty, with recent comments from SEC Chairman Gary Gensler casting Doubt on the regulatory clarity of cryptocurrencies and Bitcoin ETFs.
Despite these uncertainties, Berenberg has maintained a "hold" rating on Coinbase stock. The analysts note that while the platform's future remains uncertain, its substantial cash reserves offer a level of financial cushion and flexibility that could ensure its longevity.
