The US Treasury Secretary has reportedly contacted leading crypto industry players to discuss the potential impact of the stablecoin sector on the demand for US government bonds in the coming years.
Treasury Secretary Bets On The Crypto Industry
On Wednesday, the Financial Times (FT) reported that the US Treasury Secretary, Scott Bessent, is “betting” on the crypto industry to become a key buyer of US Treasuries in the coming years.
Following the enactment of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act in July, digital assets pegged to the US dollar are required to be backed on a one-to-one basis by US dollars or Treasury bills.
Sources familiar with the discussions told the news media outlet that Secretary Bessent has signaled to Wall Street that he expects the industry to “become an important source of demand for US government bonds” as Washington seeks to bolster demand for a surge of new US government debt.
According to FT, Bessent has contacted leading stablecoin issuers, including Circle and Tether, for information, revealing the Treasury Department’s alleged plans to increase sales of short-term bills for the coming quarters.
The report noted that the focus on the sector follows investors’ concerns about the US’s deteriorating public finances, adding that the Treasury Department’s hopes are also a sign of the White House’s “drive to bring crypto to the heart of US finance.”
“The recent passage of the Genius Act is a significant development which we are monitoring as it will promote innovation in stablecoins and grow demand for short-term Treasury securities” the Treasury Department told FT, explaining that “issuance plans will continue to be informed by a variety of inputs including that from investors, primary dealers and the Treasury borrowing advisory committee”.
Jay Barry, head of global rates strategy at JPMorgan Chase, told FT that “[Secretary Bessent and the Treasury department] absolutely think that stablecoins will be a real source of new demand for Treasuries. And that is absolutely why [Bessent] is comfortable weighting issuance towards [short-term debt].”
A Multi-Trillion ‘Gold Rush’ Era?
Notably, the Treasury Secretary previously affirmed that “this groundbreaking technology will buttress the dollar’s status as the global reserve currency, expand access to the dollar economy for billions across the globe, and lead to a surge in demand for U.S. Treasuries, which back stablecoins.” Adding that “The GENIUS Act provides the fast-growing market with the regulatory clarity it needs to grow into a multitrillion-dollar industry.”
Similarly, Goldman Sachs asserted that the industry is “at the beginning of a stablecoin gold rush,” which could potentially bring the $271 billion global market to trillions of dollars, Fortune reported.
“Stablecoins are a $271bn global market, and we believe USDC (…) benefits from market share gains on and off of partner Binance’s platform, as ongoing stablecoin legislation legitimizes the ecosystem, and the crypto ecosystem expands, also potentially catalyzed by legislation,” the report highlighted, citing the bank’s research paper from August 20.
Payments are the most obvious source of (total accessible market) expansion for stablecoins over the longer term. This opportunity is largely untapped so far, with the majority of stablecoin activity being driven by crypto trading activity and demand for dollar exposure outside of the U.S.
Nonetheless, not everyone in the financial sector believes that the sector will boost the demand for US government bonds. Global Chief Economist at financial services firm UBS, Paul Donovan, shared a more skeptical approach with clients on Wednesday morning.
According to Fortune, Donovan noted that the Treasury Secretary is “reportedly getting excited that stablecoins might increase demand for short-dated U.S. Treasuries, helping finance the unsustainable U.S. fiscal position. However, stablecoins are more about redistributing money supply.”
“Someone selling Treasury bills to buy stablecoins, which invest the money in Treasury bills, does not change demand for U.S. debt instruments,” he concluded.
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