Cash News
A crypto dollar is not as far-fetched as it might sound
As the ramifications of the recent U.S. Presidential election are analyzed by financial markets and crypto investors, one underlying fact might take some crypto investors, policy advocates, and entrepreneurs by surprise. Despite, or perhaps because of, the increased interest and investment that the crypto economy and sector had received during the recent election cycle – powered in no small part by the nearly $200 million spent by crypto lobbyists – the trends toward wider adoption and utilization continue to accelerate. Such a statement might bring to mind examples such as spot ETF products, stablecoin issuers obtaining larger shares of the payment space, or even the launch of stablecoins by TradFi institutions.
The above facts and trends are correct, and have driven broader and deeper integration of cryptoassets throughout the economy, but one other institution has recently published comprehensive research on the implications, opportunities, and challenges of stablecoin adoption. The October 2024 report by the U.S. Treasury to Treasury Borrowing Advisory Committee – over 100 pages of quantitative analytics and tables regarding borrowing and other Treasury activities – could have reasonably been overlooked in the recent deluge of media information and discourse. That said, in that report there are over 20 pages of graphics and data analyzing the status of stablecoins, use how these stablecoins are using and connected to the U.S. Treasury market, and the benefits of tokenized Treasury activities.
Put simply, these data points paint a road map for how and why the U.S. Treasury could quickly and comprehensively become a major user of tokenized payments and stablecoins; let’s take a look at a few of them.
Stablecoins Drive Treasury Demand
One of the more interesting data points presented in this report is that the continued growth and proliferation of stablecoins has also led to a increase in the demand for short-dated Treasuries. Citing the analytics of Tether (issuer of USDT) $68.3% of total collateral held by the organization was in the form of U.S. Treasury Bills. In addition to the direct purchase of Treasuring by stablecoin issuers to serve as collateral for the tokens themselves, the report also puts forward another way in which stablecoins are increasing the demand for Treasuries.
When compared to the larger cryptoassets and products that provide exposure to bitcoin (such as spot ETFs), stablecoins are viewed as lower risk, which can funnel investor dollars into these instruments during periods of market volatility. Additionally, as the digital asset sector grows, Treasuries may serve a role as an indirect hedge against inflation and – ultimately – a low volatility on-chain alternative to stablecoins.
As the dollar faces increasing competition for its role as global reserve currency, and foreign buyers of debt may reallocate funds in future, stablecoins may grow into an alternative buyer in the future.
Treasuries Are Already Tokenized
Another fact that might surprise some crypto investors is that, even after years of an ambiguous regulatory environment and antagonistic regulations, tokenized Treasuries already exist, albeit at a modest level of approximately $2 billion. For example, tokenized treasury funds are already available to investors via funds such as Blackrock’s BUIDL Fund and Franklin Templeton’s On-Chain U.S. Government Money Fund. In addition to these projects, including the one via Blackrock (also the leading player in the spot bitcoin ETF space) other options include Ondo Financial, Hashnote, and CoinShares. On top of these projects, Onyx at JP Morgan leverages tokenized Treasuries to provide intraday Treasury-backed repo solutions, with the Treasury also noting that smart contracts allow simplification and automation of Treasury transactions.
In other words the U.S. Treasury, while contending with other U.S. regulators and policymakers that have pursued an antagonistic approach, is well aware of the benefits of tokenized Treasuries as well as the reality that multiple projects leveraging these benefits already exist. Improvements to current clearing and settlement processes, more efficient collateral management, and better transparency via tokenized records are all duly noted as benefits for increased tokenization of the U.S. Treasury market.
A Strategic Bitcoin Reserve Is Only A Partial Strategy
Much has been written about the potential for a strategic bitcoin reserve, with the discussion around this idea only increasing with the election of Donald Trump as the 47th President of the United States. As exciting and arguably important as such a plan and strategic initiative is, it is only a partial solution to the problems and challenges facing the U.S. dollar and broader U.S. competitive interests. In order to remain competitive on a global basis, attract the talent necessary to succeed and lead the various industries of the future (including blockchain and tokenized transactions) the U.S. policy apparatus will need to embrace a multi-pronged approach to tokenization. A strategic bitcoin reserve is an excellent first step toward more comprehensive integration of tokenized transactions, but leveraging tokenization and blockchain transactions to improve the expand U.S. Treasury markets is an essential component of any U.S. oriented crypto plan.
Crypto dollars are virtually guaranteed, and might reach mainstream adoption sooner than many crypto investors expect.