Circle Drops 15%, Stock Frenzy Cools as BIS Warns of Stablecoin Risks

Stablecoin firm Circle’s (CRCL) meteoric stock frenzy is showing some signs of cooling.

After hitting a record high of $299 on Monday, shares of the stablecoin issuer declined 15% on Tuesday, extending a pullback that has left shares down roughly 25% from their peak. However, at $223, they are still trading over 600% higher than their IPO pricing earlier this month.

The drop isn't surprising as some analysts had already noted the stock's lofty valuation compared to peers, while Ark Invest has been continuously selling more than $300 million worth of shares since the IPO.

However, Tuesday's decline coincided with fresh doubt from the Bank for International Settlements (BIS), a financial institution owned by central banks, about the future of stablecoins.

In a Tuesday press release, the BIS said that "stablecoins as a form of sound money fall short, and without regulation pose a risk to financial stability and monetary sovereignty." The institution argued that these tokens cannot guarantee one-to-one parity with central bank money, may struggle to handle liquidity under stress, and lack the controls needed to prevent financial crime.

Instead, the BIS promoted tokenization of central bank reserves, commercial bank money and government bonds as the "next logical step" in financial innovation.

"Stablecoins may eventually play a subsidiary role in the hinterland of the financial system if adequately regulated," the authors wrote, adding that "besides acting as a gateway to the crypto ecosystem, their future role is unclear."

These remarks come in spite of the stablecoin sector's rapid growth for everyday uses such as payments and cross-border transactions, with jurisdictions across the globe advancing regulations for the asset class.

Payment firms such as Stripe, Mastercard and PayPal developed a range of stablecoin-based services complementing traditional banking rails. Stablecoins facilitated $4 trillion in transaction volume over the past 30 days, data by Visa shows.

Circle is the issuer of USDC USDC$0.9997, which is the second-largest stablecoin on the market with a $61 billion supply, following Tether's $156 billion USDT USDT$0.9996. It also launched a payments and remittances network in April, aiming to eventually rival established players such as Mastercard and Visa.