Stablecoins: Facilitating Government Debt, Not Revolutionizing Payments
By [Your Name/Author Name], Associated Press | Updated October 26, 2023
WASHINGTON — The burgeoning role of stablecoins in the financial system may not be about transforming payments or empowering crypto users, but rather enabling the government to finance its expanding debt, according to a prominent cryptocurrency figure.
BitMEX co-founder Arthur Hayes, in a new blog post, posited that traditional finance entities — large Wall Street banks and its political overseers — will ultimately benefit most from this technology. He characterized this development as a strategic “Trojan horse” allowing the “too-big-to-fail” institutions to underwrite the Treasury supply.
“The stablecoin Trojan horse is already inside the fortress,” Hayes argued, suggesting stablecoins will serve as a mechanism to prop up government borrowing.
New legislation, the Banking Act of 2022 (commonly known as the Genius Act), enacted last month, is viewed by Hayes as a key factor facilitating this, potentially enabling purchases of nearly $10 trillion in Treasury securities. He suggests this could fuel investment in “risk-on” assets like stocks and Bitcoin without any traditional quantitative easing from the Federal Reserve.
The views highlighted by Hayes reflect a growing narrative in crypto circles that the integration between traditional finance and digital assets is central to future investment strategies, overshadowing decentralized finance (DeFi) projects.
Genius Act Implications
The Genius Act, passed in the Senate, establishes new regulations for stablecoin issuers, signaling a major move towards potential mainstreet adoption for crypto assets. However, Hayes contends the bill’s impact is far less revolutionary and more foundational.
Under the legislation, stablecoin issuers with liabilities exceeding $10 billion will fall under direct Federal Reserve supervision. A provision barring large technology companies from launching their own stablecoins, thus precluding competition from platforms like Meta (formerly Facebook Inc.), is significant.
Hayes juxtaposes this controlled approach with his vision, stating, “This isn’t DeFi or financial freedom. It’s debt monetisation dressed in Ethereum drag.”
JPMorgan Chase’s planned JP.M cryptocurrency and stablecoin offering exemplify Hayes’ prediction. By offering stablecoins alongside existing services, banks could attract deposits that users might shift into for compliance reasons or because of enhanced features, channeling funds indirectly into Treasury purchases.
Combined with potential regulatory shifts lowering capital requirements for holding Treasury securities and adjustments to Fed interest payments on bank reserves, banks could significantly expand their capacity to buy government debt using proceeds from stablecoin operations, Hayes estimates unlocking over $10 trillion.
Fifteen percent of the stablecoin supply could potentially be allocated to Treasury purchases annually under these projections, representing a substantial new source of funding for the government.
Financial analysts also see immense growth potential. Bernstein Research anticipates the global stablecoin market could grow by nearly 1,500% over the next decade, reaching an estimated $4 trillion.
The Genius Act now awaits consideration by the U.S. House of Representatives, set to determine the trajectory of U.S. stablecoin regulation.
Disclaimer: Legislation and regulatory landscapes are subject to change. Views expressed in the blog post may represent individual opinion.
