BlackRock: Stablecoins Here to Stay
BlackRock posted a "Weekly Commentary titled, "Stablecoins look here to stay" which tells us, "[T]he Genius Act, signed into law earlier this month -- creates a comprehensive payment stablecoin framework. Stablecoins are digital tokens pegged to a fiat currency and backed by reserve assets. They fuse the frictionless transfer of crypto with the perceived stability of fiat currency. Though stablecoins are small relative to the size of the overall crypto universe at a 7% share, their adoption has grown quickly since 2020 to reach about $250 billion.... We see two implications of the Genius Act on the U.S. dollar and Treasury bills. The act defines stablecoins to function as a payment method, not an investment product; prohibits issuers from paying interest; and limits issuance to federally regulated banks, some registered nonbanks and state-chartered firms. This regulation could reinforce dollar dominance by enabling a tokenized U.S. dollar-based ecosystem for international payments. Users in emerging markets may get easier access to the U.S. dollar over volatile local currencies. Yet in major economies, adoption may be limited by the ban on interest payments, which aims to prevent a low-friction rival that could compete with bank deposits and hurt traditional lending." The commentary says, "The act also spells out what assets stablecoin issuers may hold in reserve: mostly repurchase agreements, money market funds and U.S. Treasury bills with a maturity of 93 days or less. Leading stablecoin issuers Tether and Circle together hold at least $120 billion in Treasury bills, only about 2% of the Treasury's roughly $6 trillion bills outstanding. That demand could grow with the stablecoin market and spur new buying of bills -- but the impact on yields will likely be limited. First, stablecoin demand for bills is likely to be offset by money shifting from similar assets, so little net new demand. Second, bill issuance is set to keep surging due to the Treasury's preference to boost the funding of persistent deficits with more short-term debt." BlackRock adds, "This wave of mainstreaming digital assets -- through a regulatory framework and U.S. administration support -- bodes well for greater adoption, the core investment case we see for bitcoin and helping make it a distinct driver of risk and return in portfolios. Stablecoins are still a relatively small part of the broader crypto universe -- and as this evolves it's not clear how stablecoins will compete with other digital assets. We see stablecoins as a new part of the future of finance -- and new U.S. legislation is aiming to put the U.S. at the center of digital asset innovation. We still see bitcoin adoption as a distinct driver of risk and return."
