USDC and Coinbase, two prominent names in the world of cryptocurrencies, are currently facing potential compliance challenges as a result of a new amendment passed by the United States Senate. The amendment, which is part of the 2024 National Defense Authorization Act (NDAA), could introduce stricter Know Your Customer (KYC) and Anti-Money Laundering (AML) measures that stablecoin issuers like USDC might find difficult to comply with.
The proposed amendment specifically requires the U.S. Treasury Secretary to set up examination standards for crypto assets to ensure that they adhere to money laundering and sanctions laws. While this amendment is still pending final approval, its inclusion in the NDAA could pose significant problems for stablecoin issuers.
One of the main concerns highlighted by Berenberg analyst Mark Palmer is the potential impact on USDC’s market cap. He explains that identifying stablecoin holders is only possible during the issuance and redemption stages. Therefore, the requirement for greater transparency could lead to a decline in USDC’s market capitalization. In fact, since March 5, USDC has already experienced a decrease in market cap by approximately 39%, amounting to $17.5 billion.
This development not only affects Circle, the company behind USDC, but also presents challenges for Coinbase. In the first quarter of this year, 27% of Coinbase’s net revenue came from interest income on USDC. Any setbacks faced by USDC could therefore potentially impact Coinbase as well. Despite the uncertainties, Coinbase has shown significant performance in the traditional equities market, with its shares surging 170% since the beginning of the year.
However, Coinbase’s bullish factors might be on shaky ground due to recent comments made by SEC Chair Gary Gensler. Gensler suggested that cryptocurrencies might fall under the jurisdiction of the SEC, raising concerns about potential regulations. Furthermore, his response to Bitcoin ETF applications hinted at possible opposition to their approval.
Despite these uncertainties, Berenberg remains cautiously optimistic, maintaining a hold rating for Coinbase stock. The company’s substantial balance of cash and equivalents provides financial cushioning and flexibility for navigating the unpredictable cryptocurrency market.
In conclusion, Circle’s USDC and Coinbase are both facing potential compliance challenges as a new amendment in the NDAA poses stricter KYC and AML measures. This development brings concerns about the transparency of stablecoin issuers and its impact on USDC’s market cap. Additionally, SEC Chair Gary Gensler’s comments have raised uncertainties surrounding regulations and Bitcoin ETF approvals. However, Coinbase’s strong position in the market and financial stability provide some reassurance amidst the uncertainties.
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