Arthur Hayes Says to Trade New Stablecoin IPOs Like a 'Hot Potato' as Circle Mania Begins

Circle's explosive IPO triggers 'stablecoin mania' warnings

In a characteristically blunt blog post published Monday, Arthur Hayes, co-founder and former CEO of BitMEX, delivered a stark warning to investors caught up in the euphoria surrounding stablecoin IPOs. The crypto veteran's message was unequivocal: "Trade this shit like you would a hot potato."

Hayes' warning comes as Circle Internet Group (NYSE: CRCL) continues its meteoric rise following its June 5 IPO. The stablecoin issuer's shares have surged 278% from their $31 offering price to trade around $117, creating what many are calling the most successful crypto IPO since Coinbase's 2021 debut.

"The listing marks the beginning, not the end of this cycle's stablecoin mania. The bubble will pop after the launch of a stablecoin issuer on a public market, most likely in the US, that separates fools from tens of billions of capital by using a combination of financial engineering, leverage, and amazing showmanship."

— Arthur Hayes, in his latest blog post

The BitMEX founder's timing appears prescient. Circle's IPO has already left $1.72 billion on the table — the seventh-biggest underpricing in decades — as shares opened at $69 and briefly touched $103.75 on the first day, triggering multiple trading halts due to extreme volatility.

The 'hot potato' trading strategy explained

Hayes' colorful metaphor of trading stablecoin IPOs like a "hot potato" reflects his belief that while these stocks may initially surge, they're fundamentally overvalued and destined to burn late investors. His analysis centers on three critical vulnerabilities that he believes will doom most stablecoin IPO hopefuls:

Distribution channel monopoly:

• Crypto exchanges: Already dominated by Tether (USDT) and Circle (USDC)
• Web2 social media platforms: Likely to build their own stablecoins rather than partner
• Legacy banks: Positioned to create proprietary solutions with regulatory advantages

"For those of us who have been in the trenches for some time it will be hilarious to watch the suited-up clowns that are able to hoodwink the investing public into investing in their dogshit companies," Hayes wrote with characteristic irreverence.

Circle's 'insane' valuation under scrutiny

Despite Circle's impressive market performance, Hayes argues the company is "insanely overvalued" at its current $18 billion fully-diluted market cap. His critique focuses on several fundamental weaknesses in Circle's business model:

First, the revenue concentration risk is stark: 99% of Circle's $1.68 billion in 2024 revenue came from interest earned on USDC reserves. This makes the company extraordinarily vulnerable to interest rate fluctuations. A mere 1 percentage-point change in rates could reduce Circle's reserve income by $441 million annually, according to the company's own SEC filings.

Second, Hayes highlights the parasitic relationship with Coinbase, noting that Circle "hands 50% of its interest income to Coinbase" as part of their distribution agreement. In 2024 alone, this amounted to a $908 million payment to the crypto exchange for supporting USDC distribution — a dependency that Hayes views as a critical weakness.

Profitability comparison:

The numbers tell a sobering story when compared to market leader Tether:

• Circle's 2024 net income: $155.7 million (down from $267.6 million in 2023)
• Tether's 2024 profits: $13 billion (primarily from U.S. Treasury yields)
• Staff efficiency: Tether operates with ~100 employees vs. Circle's larger workforce

Wall Street's looming stablecoin invasion

Perhaps the most significant threat Hayes identifies comes from traditional financial institutions. His May 23 tweet — "Bye bye Circle. Thanks for playing" — responded to reports that JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo are developing a jointly issued stablecoin for corporate and institutional use.

The timing couldn't be worse for crypto-native stablecoin issuers. The U.S. Senate's advancement of the GENIUS Act, which mandates 100% reserves and federal licensing for stablecoin issuers, effectively hands banks a regulatory roadmap to dominate the sector. Hayes estimates that a bank-backed stablecoin could capture 10-20% of current transaction volume — equivalent to $20-46 billion — within its first year.

"Stablecoin issuers must use the pipes of a crypto exchange, a Web2 social media goliath, or a legacy bank. Without access to these channels, new stablecoin issuers have no chance of success."

— Arthur Hayes on distribution bottlenecks

The competitive advantages of bank-issued stablecoins are formidable: existing customer networks, regulatory clarity, deep capital reserves, and institutional trust. These factors led to USDC's slight de-pegging to $0.9987 in May when bank stablecoin rumors first emerged — a warning sign of vulnerability Hayes believes will only intensify.

The IPO gold rush: Echoes of 2017's ICO mania

Hayes draws deliberate parallels between the current stablecoin IPO frenzy and the 2017 ICO boom that ultimately ended in tears for most investors. Circle's record-breaking first-day pop — shares opened at 123% above the IPO price — has created a feeding frenzy among both institutional and retail investors.

The numbers from Circle's debut are staggering:

• IPO price: $31 per share (above the $27-28 expected range)
• Opening price: $69 per share
• First-day high: $103.75 (triggering multiple volatility halts)
• Current trading: ~$117 (up 278% from IPO)
• Money left on table: $1.72 billion in underpricing

This explosive performance has predictably triggered a rush of activity. At least three ETF issuers filed for Circle-related funds within days of the IPO, while ARK Invest's $150 million purchase signals strong institutional demand. But Hayes sees this enthusiasm as precisely the problem.

How to play the stablecoin bubble without getting burned

Despite his bearish long-term outlook, Hayes acknowledges the powerful short-term dynamics at play. His advice for traders is nuanced and tactical:

1. Don't fight the initial momentum

"Should you short Circle, ABSOLUTELY NOT!" Hayes emphasizes. The combination of pro-crypto sentiment under the Trump administration and "stablecoin mania" narrative will likely drive prices higher in the near term. Attempting to short too early could result in significant losses.

2. Focus on relative value plays

Rather than shorting outright, Hayes suggests examining the Circle/Coinbase ratio. If Circle appears overvalued relative to Coinbase — which receives substantial revenue from Circle — buying Coinbase might offer better risk-adjusted returns.

3. Watch for distribution reality checks

The key inflection point will come when new stablecoin issuers realize they can't secure viable distribution channels. Without access to major exchanges, social platforms, or banking networks, these companies will struggle to gain traction despite their public market valuations.

4. Monitor regulatory developments

The progression of stablecoin legislation like the STABLE and GENIUS Acts will fundamentally reshape the competitive landscape. Bank entry into the market could rapidly obsolete many crypto-native players.

Broader implications for crypto markets

Hayes' analysis extends beyond individual stock picks to encompass broader market dynamics. He sees the stablecoin IPO boom as symptomatic of late-cycle exuberance in crypto markets, comparing it to memorable top signals from previous cycles.

In his recent essay "The Ugly," Hayes noted that the $TRUMP memecoin's surge to nearly $100 billion in fully diluted value within 24 hours represented a similar mania marker to FTX buying MLB umpire logo rights in 2021. The ease of making money — Hayes paid for his spa vacation "many times over with a few taps on my smartphone" — suggests markets have entered a dangerous phase.

For Bitcoin and the broader crypto ecosystem, Hayes remains cautiously optimistic about long-term prospects while warning of near-term volatility. His $1 million Bitcoin price target by 2028 remains intact, driven by U.S. dollar devaluation and capital controls. However, he's set $110,000 as his line in the sand for the current cycle — if Bitcoin breaks above this level with strong volume and expanding perp open interest, he'll "throw in the towel and buy back risk higher."

The coming shakeout: Winners and losers

Looking ahead, Hayes predicts a brutal winnowing of the stablecoin sector. His framework for identifying likely survivors is straightforward:

Potential winners:

• Tether (USDT): Dominant distribution, minimal costs, proven resilience
• Bank-issued stablecoins: Regulatory clarity, existing customer base, capital advantages
• Platform-native coins: Social media and fintech giants building proprietary solutions

Likely casualties:

• "Circle copycats": New entrants without unique distribution strategies
• Algorithmic stablecoins: Continued skepticism post-Terra collapse
• Regional players: Unable to compete with global distribution networks

The message is clear: in the stablecoin wars, distribution is destiny. Without solving this fundamental challenge, Hayes believes most new entrants are simply "dogshit companies" dressed up in IPO finery, destined to separate "fools from tens of billions of capital" before ultimately failing.