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The U.S. Senate recently passed a defense bill that could change the game for stablecoins like Circle's USD Coin (USDC) and other digital assets.
Mark Palmer, an analyst at Berenberg, brought attention to an amendment in the 2024 National Defense Authorization Act (NDAA) in a July 31 investment note. This amendment could lay down new Know Your Customer (KYC) and anti-money laundering rules that might be impossible for stablecoin issuers to meet.
The problem arises with the requirement for the U.S. Treasury Secretary to set up new examination standards for cryptocurrencies. Palmer believes that the change will help regulators ensure that anti-money laundering laws are being followed. However, he also warned that this might result in a further decline in USDC's market cap, which has already dropped $17.5 billion or about 38% since March 5.
The situation is not just concerning for Circle but also for Coinbase. Palmer noted that Coinbase made 26% of its net revenue from interest income on USDC in the first quarter of this year. A blow to USDC might affect the revenue stream for this exchange.
There were two factors that helped Coinbase's bullish activity: a favorable ruling for Ripple Labs and the applications for spot Bitcoin ETFs by major companies like BlackRock and Fidelity. However, recent statements from SEC Chair Gary Gensler have left these factors on unsteady ground, possibly affecting Coinbase's future.
In a July 28 Bloomberg interview, Gensler reminded that cryptocurrencies aren't necessarily beyond the SEC's scope. His lackluster response to a question on Bitcoin ETF applications hinted at possible opposition to their approvals.
Berenberg has kept its “hold” rating for stock in Coinbase, acknowledging the continued uncertainty. Yet, the firm noted that Coinbase's significant cash balance offers flexibility and cushioning for the company's financial future.
This new legislation and its potential impact on the crypto industry is a development to watch, especially for investors in Coinbase and holders of USDC.
