Juan Leon, Senior Investment Strategist at Bitwise Invest, underscores the increasing role of stablecoins in the US Treasury bill market. Presently, stablecoins account for about 1% of US Treasury bills. However, Leon anticipates this share could rise to 15%, potentially positioning stablecoins among the top three holders of these securities.
Stablecoin Influence Grows
Leon referenced a Bloomberg chart showing that by June, Tether’s holdings in Treasury bills reached $80.9 billion. This amount surpasses Schwab’s US Treasury Money Fund, which holds $70.7 billion, and Fidelity Investments’ Money Market Treasury Only Fund at $79 billion.
Traditional vs. Emerging Players
This development highlights stablecoins as major market participants, a role traditionally held by the $6.19 trillion money-market mutual fund industry. By the end of June, this industry had approximately $2.4 trillion in government debt, according to Bloomberg. Nonetheless, potential Federal Reserve rate cuts, which could occur as early as September, might impact the attractiveness of Treasury bills.
Future Outlook for Stablecoins
Paolo Ardoino, Tether’s CTO, affirmed in June via CryptoSlate that Tether plans to keep purchasing US Treasuries despite any rate cuts.
Challenges Ahead
The US Treasury might struggle to find buyers for its substantial debt. China has reduced its holdings by around $50 billion over the past year, and Japan, the largest holder, might also reduce its holdings to support its weakening currency.
Call for Crypto-Friendly Policies
Leon stresses the importance for the US government to adopt crypto-friendly policies. He notes bipartisan support for stablecoin regulation in Congress and suggests the US should follow Europe’s example. Leon predicts that stablecoins, with a current market cap of around $170 billion, could reach $1 trillion sooner than anticipated. This growth would make them dominant players in the Treasury market.
Impact of Market Growth
“When stablecoins reach a $1 trillion market cap, their Treasury bill purchases would exceed those of the ten largest money market funds, positioning them among the top three holders with over $800 billion in assets.”
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