Friday saw a significant downturn in the shares of Kakaopay, a notable event following the recent climb in its value driven by the speculative potential of stablecoins – a digital currency tied to a conventional asset such as the dollar or the won. The volatility of the South Korean mobile-payment company’s stock reflects the high stakes of excitement and apprehension amongst traders about the future of digital currency.
The stock of Kakaopay decreased by 10%, marking the steepest daily fall in more than a quarter. It closed at 84,200 won, equivalent to $62.01. The drop was preceded by forced suspensions of the stock’s trading on Tuesday and Thursday, triggered by warnings from the Korea Exchange about the “investment-risk” of the stock which had risen by 16% on Monday and 30% in the previous session.
Many market observers consider the stock to be overvalued due to it doubling in value over the past month. Traders are speculating that the new administration under President Lee Jae-myung may pave the way for won-based stablecoins in South Korea. Lee had expressed support for the institutionalization of cryptocurrency and other digital assets during his election campaign.
However, the Bank of Korea has issued warnings that stablecoins could present a threat to financial stability. Widespread adoption of digital currency and erosion of trust could lead to “coin runs,” similar to bank runs, where issuers may be compelled to liquidate assets due to a surge in redemption demands.
The Bank for International Settlements stated in its annual report earlier this week that while the demand for stablecoins has grown significantly, cryptocurrencies should not form the backbone of future monetary systems. According to the BIS report, stablecoins still fail to meet the necessary standards required for robust monetary arrangements.
