Rapid Growth of Stablecoins: A Boon or Bane for the Korean Stock Market... Inevitable Impact

[Financial News] Cryptocurrency 'stablecoin', which is pegged to the value of the US dollar, is expanding its influence beyond the digital asset market to the global financial market as a whole. Recently, as the demand for US Treasury bonds backed by stablecoins increases and the weakening of traditional monetary policy becomes a reality, it is analyzed that it could also affect the Korean stock market. In particular, the possibility of capital outflow from domestic investors and the increased volatility of foreign investment inflows require the attention of financial authorities and the market.
According to the securities industry on the 12th, the market capitalization of stablecoins reached 253 billion dollars (about 349 trillion won) as of July, accounting for more than two-thirds of the total virtual assets, rapidly dominating the market. Major stablecoins such as 'USDT' and 'USDC' use US short-term Treasury bonds as collateral, resulting in high linkage with the bond market.
There is also an analysis that stablecoins can directly affect the demand for US Treasury bonds and influence the flow of global investment funds. Jeong Hyeon-jong, a researcher at Korea Investment & Securities, said, "The expansion of demand for stablecoins leads to a withdrawal of funds from traditional liquidity items such as deposits, which can weaken the effectiveness of monetary policy by central banks around the world."
The impact on the domestic stock market is also expected to be significant. Researcher Jeong said, "Even if a won-based stablecoin is issued domestically, its global utilization is expected to be low, making capital outflows to overseas assets inevitable," adding, "The flow of funds being remitted to overseas exchanges for virtual asset investment is likely to continue."
If the global asset investment demand using stablecoins increases, the inflow of funds into the Korean stock market may slow down, and there is also the possibility of a connection to the weakening of the won and the contraction of foreign investor sentiment. This is because the spread of stablecoins can change the path of global liquidity flow, affecting foreign investment decisions in the domestic stock market.
If the uncertainty in the virtual asset market increases, the expansion of linkage with the stock market is pointed out as a risk factor. In fact, during the Terra-Luna incident in 2022 and the Silicon Valley Bank (SVB) bankruptcy in 2023, if a trust crisis like the USDC de-pegging (deviation from the $1 value) incident repeats, the shock can be transmitted to the entire investment structure backed by stablecoins. In this process, the expansion of leverage investment liquidation can negatively affect the stock market.
Uncertainty in the foreign exchange market can also act as a variable for the stock market. Researcher Jeong added, "If cross-border fund movement using stablecoins expands, the burden of intervention in the foreign exchange market increases, and predicting foreign inflows into the Korean stock market becomes difficult."
Experts see that as the boundary between the digital asset market and the traditional financial market collapses, stablecoins can function like a new 'standard'. Accordingly, it is pointed out that the Korean financial market also needs a mid- to long-term response strategy.
Researcher Jeong said, "The spread of stablecoins is not just a technology but a change in the financial structure that alters capital flows," adding, "The Korean financial market should also have a system design and investor protection framework to respond to this."

dschoi@fnnews.com Choi Doo-sun Reporter