SoFi stock warning: stablecoin faces major scaling headwinds

SoFi Technology NASDAQ:SOFI stock price popped on Friday after forming the highly bullish double-bottom pattern at $15. It soared to a high of $18.50, its highest point since April 28, up by 22% from its lowest point this year, as investors welcomed the new stablecoin.

SoFi Technology stock technicals point to more gains

The daily chart shows that the SoFi share price crashed and bottomed at $15, its lowest point in April and May this year. It formed a double-bottom pattern with a neckline at $20, its highest point on April 17. A double-bottom is one of the most common bullish reversal signs in technical analysis. 

The stock has now jumped above the 50-day Exponential Moving Average (EMA), a sign that bulls have prevailed. Also, the Relative Strength Index (RSI) moved above its moving average and the neutral level of 50. 

Therefore, the stock will likely continue rising as bulls target the key resistance level at $20. A move above that price will point to more gains, potentially to the 50% Fibonacci Retracement level at $23. This target is about 28% above the current level. 

On the flip side, a drop below the double-bottom level at $15 will invalidate the bullish forecast and point to more downside.

SoFi stock chart | Source: TradingView

SoFi Technology’s stablecoin faces major headwinds

The main reason why the SoFi stock price is doing well is that the company just launched SoFiUSD, the first stablecoin by a regulated US bank. It joins other stablecoins by top American companies, including Circle’s USDC, PayPal’s PYUSD, and Ripple’s RLUSD.

Launching a stablecoin is a natural thing for SoFi, a company that offers various services, including banking, credit scores, mortgage loans, student loans, investing, crypto trading, and credit cards.

If it succeeds, the stablecoin will generate high margin revenues since the company will just invest its funds in short-term government bonds. 

Still, the main challenge is that the company will struggle to attract substantial assets in its stablecoin as the industry is now saturated. PayPal’s PYUSD has just $3 billion in assets a few years after its launch. 

Ripple’s RLUSD has $1.8 billion. Instead, USDC and USDT stablecoins have accumulated $76 billion and $190 billion in assets. As such, the company will need to convince its customers why its stablecoin is better. 

SoFiUSD’s other main challenge is that it is an American company, with all its customers being in the country. Coinbase (NASDAQ: COIN), the biggest crypto exchange, has an exclusive deal with Circle, meaning that it may not list the stablecoin.

Coinbase’s deal with Circle is that it should invest most of the USDC in its platform and keep the interest. This business made it over $1 billion in annual revenue last year and is one of its best in terms of margins.

The most recent earnings report showed that its business was still growing. Its members experienced a 38% CAGR to over 14.7 million, which is leading to a higher revenue growth. It expects to make $7.8 billion in annual revenue in 2028 from the expected $4.65 billion this year. 

This growth will help to justify its elevated valuation metrics. SeekingAlpha data shows that its forward price-to-earnings (PE) ratio has jumped to 29, higher than the financials sector median of 10. Its multiple is also higher than that of NVIDIA, which has a multiple of 22 despite its strong revenue growth.