Managing Editor’s Note: Today, we turn to Brownstone’s senior crypto analyst, Ben Lilly.
According to Ben, volatility, bad actors, and a fundamental misunderstanding of what crypto is all about have instilled distrust among retail investors.
But sentiment is shifting. And one crypto trend in particular is about to see major movement. Read on for more from Ben…
The crypto market downfall of 2022 has instilled a severe distrust of blockchain-based assets in today’s class of retail investors.
It’s not surprising given everything that was happening in the industry at the time.
The cryptocurrency exchange FTX filed for bankruptcy in November 2022 after a $8 billion hole was exposed in its balance sheet. This misappropriation of customer deposits led to its founder being found guilty of fraud.
This came as financial platforms like BlockFi, Voyager, and Celsius, among others, were already moving through their bankruptcy proceedings.
FTX’s collapse was devastating for the industry. I was recently discussing this with a colleague in the industry who works as a consultant, and he shared with me that the lingering distrust is more deeply rooted than we could’ve imagined.
To the average retail investor, these businesses were representative of the crypto industry, despite how they were operating opaque lending books with improper disclosures – the antithesis of crypto’s standards.
Investors weren’t distinguishing those unethical practices from off-chain companies versus what would be considered a typical blockchain company or project. Great blockchain companies were getting lumped into the same bucket as those rogue businesses that operated entirely outside of the transparent blockchains crypto experts advocate for.
Since I began my cryptocurrency journey in 2014, crypto has gotten a bad shake. And that’s largely due to the shady off-chain dealings of a handful of bad actors adjacent to the industry. But that isn’t what crypto is about.
A perfect example is the great success that has been seen with the lending and borrowing protocols that operate with on-chain transparency. These projects were completely unscathed despite the volatility in the industry.
The off-chain businesses that were tarnishing the reputation of public and permissionless blockchains by operating in similar ways to the exact entities that permissionless, blockchain-based applications were trying to disrupt…
And their failure was for one simple reason…
Lack of transparency.
The fact that we see lending protocols like Sky (formerly MakerDAO), Aave, Compound, and others still in operation today proves that any widespread distrust of the digital assets industry is misdirected.
It’s in part why my colleague’s helpful insight regarding retail’s impression of the industry has bothered me to this day.
What’s worse, this distrust seems to be clouding the minds of some of the smartest investors, preventing them from seeing the earliest signs of demand returning to the market.
So today, we’re looking at recent events with fresh eyes. Because if we don’t, we’ll likely be looking back on today’s events with regret.
Jeff Dorman has been the Chief Investment Officer at Arca – an asset management firm dedicated exclusively to digital assets – for nearly seven years.
He’s been an institutional investment voice that has a very grounded understanding of digital assets and has led the effort for Arca’s investments across 67 active startups.
One of those was the USDC stablecoin issuer Circle.
Circle just completed its Initial Public Offering (IPO) and listed on the New York Stock Exchange on June 5. Circle’s stock price opened up way above its IPO offering, and by the end of the first day of trading, the stock was up 168%.
It has since climbed even higher, giving IPO investors a nearly 400% gain in just eight trading days.
In response to the wild success of Circle’s IPO, Dorman was livid.
Why? His firm had submitted an order for $10 million shares and received a measly $135,000 allocation. Meaning they missed out on what could be $40 million in profit.
Dorman wrote an open letter expressing his frustration with Arca’s “throwaway” allocation of shares in the IPO…
Arca has been through hell and back like every other crypto-native firm for the last eight years. Most of us stick together and help each other. I cannot believe our efforts to help you grow for years culminated in you giving us a joke, throwaway allocation. You are the first and only crypto company that has ever treated Arca this way.
I’d be pretty upset as well…
But here’s the thing… it wasn’t just Arca. Nearly everyone missed out. Circle’s IPO was heavily oversubscribed. According to Morningstar, demand was 25 to 30 times the $1.05 billion offered.
And that’s after Circle raised its target price per share.
Dorman wasn’t the only one wishing they had more exposure to a trend that is about to go into hyperdrive. A trend that, by the time you read this, will have been voted on by the U.S. Senate.
That trend is stablecoins.
Stablecoins are digital assets, tokens, that are traded on public blockchains while maintaining a peg to a “stable” asset.
For Circle, its token is USDC. And it maintains a peg to the U.S. dollar by holding cash, treasuries, and other cash-like assets on its balance sheet. So, for every USDC token transacting on public blockchains, there is an equivalent amount of backing in a U.S. dollar cash or cash-like asset.
This gives users confidence that Circle has the full backing of their stablecoins and can meet any redemption request that comes their way.
But what’s more, Circle operates on public blockchains. Meaning they don’t have to maintain servers and accounting methods the same way as most FinTech or banks must. Each transaction takes place on infrastructure that is maintained by validators that are not on their payroll.
It’s how stablecoin providers like Circle can lower costs by 80% compared to traditional finance methods.
It also signals higher margins by eliminating cost.
Distribution costs are also slashed thanks to the ease with which a new application, user, or business can accept a stablecoin like USDC. It just takes a wallet on a blockchain that already has USDC running on it.
And USDC is running on virtually every major public blockchain today. Meaning its addressable market is virtually anybody with an internet connection.
No need to fill in an application to gain access to a bank account. This makes Circle incredibly scalable with global distribution, while eliminating major costs to operate.
And while the innovation of disrupting the flow of dollars globally is exciting, this is what makes the trend ready to accelerate…
The GENIUS Act is being voted on by the U.S. Senate today at 4:30 p.m. ET.
In fact, by the time you read this, the results might already be in.
We wrote about this bill recently in The Bleeding Edge – The Market’s Silent Monster…
[The] “Guiding and Establishing National Innovation for U.S. Stablecoins of 2025” or “GENIUS Act of 2025” is one of the top priorities of the year.
It’s a bill that lays out a federal regulatory framework for payment with stablecoins. It lays out the definition of a stablecoin as well as discusses a licensing framework and some protections, such as reserve requirements, disclosures, and oversight.
This moment is monumental for the digital asset industry.
Some industry insiders have said that enough Democrats have expressed support for this bill that it should be passed and move to the House of Representatives in short order. Meaning this is an act that looks to be signed into law before the August recess.
The bill itself paves the way for stablecoin usage and adoption. It lays out how companies need to operate and how major institutions can finally get involved.
The demand for this new piece of technology is overwhelming. We need look no further than Dorman’s frustration in getting a larger piece of the pie as an example.
And with institutions about to get the green light on including stablecoins as part of their everyday services, we can see why the largest asset manager, BlackRock, acquired 10% of Circle’s shares at IPO.
Industry estimates place the stablecoin market at more than $3 trillion in the next five years. Even Treasury Secretary Scott Bessent expects the stablecoin market to go beyond $2 trillion in a few years, citing the expected passage of the GENIUS Act.
This represents 10–15x growth for the stablecoin market in just a few years.
And the reality is, those estimates might be too conservative.
We see JPMorgan, Bank of America, Citi, Fidelity, PayPal, and several others showcase their technology or intent to be active in the space.
The combination of what we are witnessing with Circle’s IPO, the impending legislation, and the biggest asset managers and bankers of the world chomping at the bit to get rolling means the entire settlement industry is about to be overhauled at an accelerated pace.
We can’t be idle in a trend that is preparing to take off in the months to come, and we definitely can’t let the negative events from years past blind us to what is staring us in the face.
These stablecoins will be globally distributed on public and permissionless blockchains. This influx of liquidity means any application leveraging this trend is set to see a wave of users and transaction activity come their way.
Finding the protocols and projects ready for this wave will mint a fresh wave of millionaires.
Your Pulse on Crypto,
Ben Lilly
Senior Crypto Analyst, The Bleeding Edge
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
