Bernstein says crypto may finally have its killer application

Published Wed, Aug 9 20231:00 PM EDTUpdated Wed, Aug 9 20232:43 PM EDT

Maybe payments are the best use for crypto after all — just not with bitcoin . According to Bernstein, stablecoins are "the monster crypto killer-app" and could be a nearly $3 trillion market over the next five years. "We expect major global financial and consumer platforms to issue co-branded stablecoins to power value exchange on their platforms," analyst Gautam Chhugani said in a note Wednesday. "Going forward, we expect tokenized stablecoins to be a $2.8 trillion market, led by regulated, onshore stablecoins." Stablecoins are cryptocurrencies whose prices are pegged to an underlying asset. It's typically a fiat currency — usually the U.S. dollar — although there are stablecoins whose prices are tied to commodities or other financial assets. Stablecoin business models are "extremely lucrative" due to float income from treasury and money market holdings of stablecoin issuers, Chhugani said. "We expect these revenues to be shared with their consumer partners, making co-branded stablecoins attractive for new platforms," he wrote. "We expect this profit pool to become increasingly on-shore, regulated and shared between consumer distribution partners." There's about $125 billion worth of stablecoins in circulation, although more than $6 trillion are settled annually on public blockchains such as ethereum. They're primarily used by the crypto industry and early adopters for business-to-business settlements, exchange transfers, trading pair settlements and person-to-person transfers. Most stablecoins are "generic," Chhugani said, and have minimal integration with consumer brands, commerce and traditional rails. The market is also dominated by offshore players such as Tether. The stablecoin market has dropped sharply this year despite bitcoin being up about 75%. The two normally move together. Tether seems to be bucking the trend, however. It grew its market capitalization 26.5% this year. In July, it hit an all-time high of $83.8 billion and now accounts for 68.5% of the overall stablecoin market. The crypto market currently awaits a vote in Congress on a key stablecoin bill , which has just advanced to the House with three other crypto bills for the first time. In anticipation of that decision, payments giant PayPal this week launched a company-branded stablecoin . While there's little detail on how exactly PayPal's customers and merchants would utilize stablecoins within the payments giant's ecosystem, Bernstein said the endeavor seems to be at the forefront of the future of crypto and payments. — CNBC's Michael Bloom contributed reporting.