- Goldman Sachs and U.S. Treasury Secretary Scott Bessent expect a stablecoin gold rush, driven by new regulations and massive potential for payment market expansion. Stablecoins, which must be backed by U.S. dollars or Treasuries, could boost demand for government bonds, though some argue this mostly redistributes money, rather than increasing the net demand for debt.
U.S. Treasury Secretary Scott Bessent believes stablecoins will buoy the market for U.S. Treasuries, and the government will sell more short-term debt to meet that demand, according to the Financial Times. “Bessent has signaled to Wall Street that he expects stablecoins, digital tokens that are backed by high-quality securities such as Treasuries, to become an important source of demand for U.S. government bonds,” the FT reported.
The FT’s sources asked for anonymity, but there was no need for them to be coy: Bessent said in a press statement back in July that he expected demand for cryptocurrencies—backed 1 to 1 with U.S. dollar instruments—to support the price of bonds:
“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. The GENIUS Act provides the fast-growing stablecoin market with the regulatory clarity it needs to grow into a multitrillion-dollar industry,” he said at the time.
The GENIUS Act, announced last month, “aligns State and Federal stablecoin frameworks, ensuring fair and consistent regulation throughout the country,” the White House said at the time.
So how big a deal will this be?
Goldman Sachs thinks we’re at the beginning of a stablecoin gold rush, according to a research paper published today by the bank’s Will Nance and others.
“Stablecoins are a $271bn global market, and we believe USDC [the stablecoin issued by Circle] 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. Based on current trends and announced initiatives, we see $77bn of growth in USDC, or a 40% CAGR, from 2024-27E,” they wrote.
The potential total market for stablecoins is in the trillions, Goldman says. “Visa sizes the addressable market for payments at ~$240 trillion in annual payment volume, with consumer payments representing ~$40 trillion of annual spending. B2B payments comprise roughly ~$60bn while P2P payments and disbursements comprise the remainder.
“As such, 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.”
Because stablecoins in the U.S. must be backed 1 to 1 with dollars or U.S. bonds, each stablecoin issued increases the demand for the bonds that back them. Some people think this will alter the bond market, especially for short-dated bonds with low interest yields.
A research paper by the Bank for International Settlements (an international organization that fosters cooperation among central banks), says it will. “A 2-standard deviation inflow into stablecoins lowers 3-month Treasury yields by 2-2.5 basis points within 10 days,” the BIS paper estimated. But the effect is “asymmetric”: “Stablecoin outflows raise yields by two to three times as much as inflows lower them,” the paper said.
UBS’s Paul Donovan is more skeptical: “U.S. Treasury Secretary Bessent 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 told clients this morning.
Here’s a snapshot of the markets prior to the opening bell in New York:
- S&P 500 futures were flat this morning, premarket, after the index closed down 0.59% yesterday.
- STOXX Europe 600 was up 0.13% in early trading.
- The U.K.’s FTSE 100 was up 0.23% in early trading.
- Japan’s Nikkei 225 was down 1.51%.
- China’s CSI 300 was up 1.14%.
- The South Korea KOSPI was down 0.68%.
- India’s Nifty 50 was up 0.28% before the end of the session.
- Bitcoin fell to $113.9K.
