Will Stablecoins Kill Visas Business? A Closer Look at the Reality and Implications for Investors

The cryptocurrency market has been making headlines lately, and Visa (NYSE: V) is no exception. The payments-network giant has seen its stock price drop almost 10% from all-time highs due to new stablecoin legislation that's working its way through Congress. But should you be worried about your Visa stock investment?

Stablecoins are cryptocurrencies with a value pegged against a fiat currency, such as the U.S. dollar. They're designed to be more stable than other cryptocurrencies like Bitcoin, which can be highly volatile. The new legislation aims to bring official regulations for these cryptocurrencies, ensuring that issuers have proper reserves to pay back customers and that they go through regular audits of their balance sheets.

This news has sparked a sell-off in Visa and other payment networks as merchants across the board are now closer to having the green light to accept stablecoins legally in the U.S., as well as other countries. For example, Stripe is working to bring USDC as an acceptable currency for payments for Shopify merchants, making it a competitive option to Visa.

However, despite these developments, Visa has a strong competitive edge that makes it difficult for stablecoins to replicate its network effect. Visa is accepted in virtually every country around the world by 150 million merchants, with 4.8 billion total cards in circulation with consumers. It will take many years, if not impossible, for a stablecoin to replicate this level of acceptance globally.

Moreover, consumers aren't going to give up the cash back they get when using a Visa card. Even credit cards with no annual fees give cash back to consumers, which is what the 2%-3% fees pay for. Annual-fee cards give perks to shoppers sometimes worth thousands of dollars a year. Shoppers aren't going to adopt stablecoins and give up these perks because stablecoins will make merchants more in profit. Consumers care about saving money for themselves.

So, while stablecoins are an interesting innovation, they won't kill Visa anytime soon. The payment processor has such a wide moat with its network that it would be nearly impossible for a stablecoin to replicate its success. Visa stock may have declined from all-time highs but isn't going to zero, so don't think of selling your Visa stock because of stablecoin legislation. However, it's not clear that the stock is a rock solid buy today, given it still trades at a price-to-earnings ratio (P/E) of 34. This is a mature company that can produce stable but slow growth over the long term, so it might not deserve such a premium valuation.

In conclusion, while stablecoins are a threat to Visa's business, it's not enough to warrant selling your investment in the company. However, it's important to consider that the stock may not be as cheap as it seems and that there are other stocks that could produce higher returns in the coming years. Before investing in Visa, consider joining Stock Advisor to see the 10 best stocks for investors to buy now and compare them to Visa's performance.