The stablecoin bill, which is expected to be passed by Congress, will put significant downward pressure on cryptos
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Congress is considering legislation that would place strict limits on stablecoins. Specifically, the bill supposedly provides for a ban unsecured algorithm Stablecoins. In other words, the measure would force stablecoin issuers to own $1 in U.S. currency for every dollar of stablecoins they issue. Because this provision would be very costly for issuers, many if not most existing stablecoin providers would likely have to cease operations if the law were passed.
And under the bill, the Federal Reserve would have the authority to regulate stablecoins. So if it passes, the Fed is likely to make life difficult for stablecoin issuers. They could force many of them to leave. Since investors often take advantage of interest income from stablecoins Buy cryptos, the demise of a large number of stablecoin issuers is likely to put downward pressure on crypto prices. Here are three crypto stocks you should sell to avoid getting hurt by the looming congressional crackdown on cryptocurrencies.
Coinbase (COIN)
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Last quarter, Coinbases (NASDAQ:COIN) direct income from stablecoins came to $197.3 million out of its total revenue of $1.59 billion. However, the company also generated interest and finance fee income of $66.7 million. And custody fee income of $32.3 million. I think there is a high probability that a large part or all of these latter two revenue streams are also related to stablecoins. Given these points, the company will likely suffer a large, direct drop in revenue if Congress passes the stablecoin bill.
In addition, investment bank TD Cowen has written that crypto controls on bank secrecy are likely to be included in the stablecoin bill. I interpret TD Cowen’s statement to mean that the law would impose such restrictions on all cryptos, not just stablecoins.
Given these points, I expect trading volume on the Coinbase exchange to drop sharply if the bill goes into effect. That’s because money launderers and other criminals will stop using cryptocurrencies to evade the crypto controls likely to be included in the bill.
Given all these points, I consider Coinbase to be one of the best crypto stocks to sell.
MicroStrategy (MSTR)
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According to a source Microstrategy (NASDAQ:MSTR) owned 214,000 Bitcoin (BTC USD) on May 1st. The total cost associated with these Bitcoins is reportedly over $7.5 billion. As I mentioned above, the stablecoin legislation that I expect Congress to pass will likely force many stablecoins to close. This deprives many Bitcoin buyers of an important source of income.
Additionally, the bill will likely also force Bitcoin buyers to comply with anti-money laundering and bank secrecy laws. Therefore, I expect many Bitcoin users to sell the cryptocurrency rather than reveal their identities to the government. This sale, in turn, would put huge downward pressure on MSTR stock due to MicroStrategy’s huge Bitcoin holdings.
Also a bad sign for MSTR stock is the fact that in the last three months, company insiders bought no shares in the name, even though they sold 362,000 shares.
Marathon Digital (MARA)
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Marathon (NASDAQ:MARA) focuses on mining Bitcoinand it owned 17,631 BTC as of May 3rd. As a result, the company’s sales and profits will be undermined by the potential stablecoin regulatory law.
Additionally, as a result of the Bitcoin halving, the number of Bitcoins Marathon earns from mining will decrease was cut by 50%. As a result, the company’s sales and profits are likely to decline in the future.
Many forecasters expected the halving to send Bitcoin prices sharply higher. Such a phenomenon would have helped limit Marathon’s losses from the halving by allowing it to offload the Bitcoins it mined at higher prices.
But since the halving On April 19, Bitcoin prices barely changed. I believe that concerns about the looming stablecoin law are a big reason why the expected rally failed to materialize.
At the time of publication, Larry Ramer held a short position and put options on COIN. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s publication policies.
