Markets are like reading a long story. Traders regardless of time frame are always trying to read that story and determine what most likely is to happen next. If a passage is familiar to them then they take action based on having seen similar passages that have happened in the past. It is at that precise point that a trader decides to take action.
In that same vein there is an emerging story in the market that has begun to take traction. We have all heard about the transactional fees that have continued to be charged by the likes of Visa and Mastercard. According to a Nilson Report, in 2022 Visa and Mastercard cards generated 8.272 trillion dollars in purchases in the US. Using rough math that is approximately 248 million dollars in fees generated that merchants paid to Visa and Mastercard in the US alone. Even to this day they continue to enjoy a monopoly on payment processing over the likes of American Express and others.
Times change quickly these days with the emergence and legitimization of crypto though ETFs and other instruments there are many people curious over what the next step is. Enter stablecoins. There are different types for sure but let’s focus on one type in particular. Those are those that are considered Fiat-Collateralized stablecoins. These are pegged against a fiat currency like the US dollar and as such maintain a reserve of that currency to issue stablecoins against.
What’s the big deal one might ask? Why do we even need it? Investors argue that it is a way to have crypto that is not necessarily as volatile as Bitcoin for example as it has obviously been a good store of value and has greatly appreciated in value. It is, however, hard to accept as payment as it is in fact extremely volatile.
Enter a company named circle (CRCL) who recently IPO’d and has amassed 275 percent growth in its share price since its IPO. It issues a FIAT stablecoin(USDC) that is based in the US. This combined with the senate passing the Genius Act in bi-partisan fashion, something that is difficult in the US government today(it still needs to go through the House of Representatives). The recent announcements from the likes of Amazon and Walmart on the possibility of issuing their own stablecoins has only added fuel to the fire. Coinbase is another beneficiary from recent action by the US government as they have a revenue sharing agreement with CRCL as well.
This can leave legacy payment processors in the cold as it is currently estimated that fees for transactions using stablecoins such as USDC can be as low as .5 percent versus the 2-3 percent that is currently charged by Visa and Mastercard. The market moves to price this in quickly and as such these stocks(not an all inclusive list) should continue to be on watch:
What the effect of this long term is not necessarily what I’m looking to narrate. As a trader I am paying attention and seeing what the market continues to say about these stocks day to day and not form a bias one way or another. Focusing on price action and momentum while this story plays out is key to being on the right side of the trade regardless what a trader might think.
