Investing.com -- In a Tuesday note to clients, Bernstein analysts offered a deep dive into the stablecoin industry, which has seen its market capitalization surge to $220 billion, up 74% compared to 2023.
The report noted recent developments such as Visa (NYSE:V)'s stablecoin-based settlement capabilities, Mastercard (NYSE:MA)'s tokenized asset platforms, the launch of PayPal (NASDAQ:PYPL)'s PYUSD, and Stripe's acquisition of Bridge.
The analysts also pointed out the potential for stablecoin legislation to be passed by Congress, which could spark further innovation and engagement from traditional financial services.
Despite the rapid growth, Bernstein analysts clarified that the bulk of stablecoin use is currently within the crypto capital markets, rather than in everyday payments. They argued that in domestic retail payments, stablecoins are not addressing an immediate need, citing the prevalence of existing cheaper payment methods like ACH and RTP, and the value-added services provided by credit cards.
However, the analysts identified cross-border payments, particularly in remittances and B2B transactions, as areas where stablecoins could potentially gain traction due to the inefficiencies of the current correspondent banking system.
The Autonomous Fintech Strategy team at Bernstein suggested that political factors, including support from the White House and a pro-crypto stance among agency heads, are creating favorable conditions for stablecoin regulation to be enacted this year.
The firm gave a 70% probability to the passage of the Clarity for Payments Stablecoin Act, which could lead to financial institutions integrating stablecoin issuance or settlement into their operations.
“We will also likely see increased regulatory scrutiny on "debanking" practices of the past, further incorporating stablecoin issuers, exchanges, and intermediaries into the traditional financial industry,” Bernstein analysts led by Harshita Rawat said in a note.
Meanwhile, the Bernstein Digital Assets team emphasized that the primary role of stablecoins today is as a settlement currency within the crypto economy. Nevertheless, they observed expanding use-cases, particularly in international remittance and cross-border B2B payments.
They also noted that stablecoin issuers are among the top 20 global holders of US Treasuries, which has prompted the US government to prioritize stablecoin regulation.
“99% of stablecoins are $ denominated, reinforcing the Dollar dominance in the global on-chain economy,” analysts noted. “Further, the strong base of float income economics incentivizes partnerships with fintechs, leading to a strong distribution flywheel for stablecoins.”
Overall, Bernstein believes that payment and fintech companies are well-positioned to leverage stablecoins to benefit consumers and businesses, with digital wallet providers like PayPal being at an advantage due to their established user bases and involvement with their own stablecoins.
They also suggested that Visa and Mastercard could emerge as long-term beneficiaries, aligned with their strategies of creating networks of networks.