Stablecoins could drive demand for Treasury bills
By Telis Demos, The Wall Street Journal
Treasury Secretary Scott Bessent’s mission to tame the bond market could get help from another Trump administration push: crypto legislation.
Last week, the U.S. Treasury announced larger buybacks of longer-term bonds. That can be funded by increasing issuance of shorter-term Treasury bills, or what Bessent, speaking on CNBC, called a Treasury twist. In that context, it is notable that Bessent has in the past talked about a big potential new source of demand for Treasury bills: stablecoins.
The connection is that under the Genius Act—the crypto regulatory law passed last year—stablecoins issued in the U.S. that aim to stay fixed to the value of the dollar can back that promise only with certain assets, including Treasurys that mature within 93 days.
Today, the market value of all stablecoins is around $300 billion. That is still pretty small in the grand scheme of things: U.S. money-market funds are close to $8 trillion. But Bessent has in the past cited projections that stablecoins could grow into a nearly $4 trillion market, and written that “this could lower government borrowing costs.”
Another thing that could propel stablecoins’ growth is the passage of the Clarity Act, which is meant to regulate other aspects of crypto markets. That law has been caught in a dispute between banks and crypto companies about percentage rewards to hold stablecoins that, to lenders, aim to compete with yields on bank deposits.
President Trump this past week hosted crypto executives at the White House to urge passage of the act. The Securities and Exchange Commission also proposed a new regulatory framework for crypto assets this past week.
In anticipation of all these things coming together, crypto stocks have surged. Shares of Circle Internet Group CRCL 5.16%increase; up pointing triangle, the issuer of USDC stablecoins, and Coinbase Global COIN 8.20%increase; up pointing triangle, which offers rewards to holders of USDC, both rallied more than 20% last week.
For stablecoins, Clarity Act passage “would reduce friction via greater regulatory certainty,” TD Cowen analyst Bryan Bergin wrote in a recent note, though he noted that adoption was already advancing without that law.
The connection between stablecoins and Treasurys isn’t a fanciful one. A recent review published by the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy suggests stablecoins could create substantial net new demand for Treasury bills, particularly if money shifted into stablecoins either from bank accounts or if they were bought by foreigners.
Banks typically hold only 8 cents worth of T-bills per dollar of assets, while a $1 stablecoin is typically backed by almost 80 cents worth of T-bills, according to the review. And the authors of the study figure that very little of the foreign money moving into U.S.-dollar stablecoins would require selling Treasury bills. Much of the demand might come from savers in countries with less-stable currencies who lack access to U.S. bank accounts.
The review considered different scenarios for stablecoins’ growth. In one “bull case” scenario that was outlined by Citigroup’s Citi Institute, in which stablecoins grow to a $4 trillion market, their Treasury bill holdings could represent around a quarter of bills outstanding as of 2030, according to the review.
