[Bitcoin Now] Why the U.S. Is Serious About Stablecoins

Stablecoin Market Expected to Reach USD 2 Trillion
Rising U.S. Short-term Treasury Demand from Reserve Asset Growth
Partial Relief for Long-term Treasury Issuance Burden

There are forecasts that the U.S. dollar stablecoin could grow into a tool that drives global dollar demand and alleviates U.S. fiscal burdens. As the stablecoin market expands, demand for U.S. short-term Treasuries is expected to rise, allowing the U.S. to establish a new base of structural investors.

On September 2, iM Securities analyzed that attention should be paid to dollar stablecoins as the fiscal burden on the U.S. continues to grow. The Treasury Borrowing Advisory Committee (TBAC) under the U.S. Treasury Department has also recently reviewed external forecasts that the stablecoin market will reach around USD 2 trillion by 2028 and discussed the potential impact on Treasury demand.

Currently in the U.S., concerns about the value of the dollar are mounting as the Treasury expands its buyback (early redemption) program for long-term Treasuries. In response to the sharp rise in long-term interest rates, the Treasury doubled the size of its buyback operations for 10-30 year Treasuries to a minimum of USD 4 billion per round. The market has interpreted this move as policy intervention to curb rising long-term interest rates, leading to so-called "debasement trades," where funds shift from the dollar to real and alternative assets such as gold and Bitcoin amid a weakening dollar.

Dollar stablecoins are being presented as a means of increasing dollar demand, mitigating concerns about the dilution of dollar value, and channeling those funds back into demand for U.S. Treasuries. Dollar stablecoins must be backed by reserve assets equivalent to their issuance volume, and major issuers manage most of these reserves in ultra-short-term Treasuries (T-bills) and Treasury-collateralized repurchase agreements (RPs), among other short-term securities. As the stablecoin market grows, its reserve assets increase, which structurally boosts demand for U.S. short-term Treasuries.

Tether and Circle already hold USD 115 billion and USD 13.2 billion in T-bills, respectively. Including reverse repurchase agreements and term reverse repurchase agreements, their assets connected to the U.S. Treasury market total as much as USD 203.4 billion.

Based on projections that the stablecoin market capitalization will grow to USD 2 trillion, direct holdings in T-bills are expected to increase to USD 855 billion, resulting in an additional demand of USD 726 billion compared to current levels. If stablecoin issuers emerge as stable buyers of short-term debt, the Treasury will be able to shift some of its long-term debt issuance burden to the short-term debt sector.

However, there are assumptions to this scenario. As the price of virtual assets declines, the pace of stablecoin market capitalization growth has slowed, making it challenging to achieve a USD 2 trillion market by 2028 based solely on demand for virtual asset trading. The key variable will be how quickly the use of stablecoins spreads to non-virtual asset domains such as payments, remittances, and real-world assets (RWA).

Yang Hyunkyung, a researcher at iM Securities, stated, "If dollar stablecoins grow and reserve assets increase, forming a structure where demand for T-bills expands, the U.S. will be able to scale up global dollar usage and secure a new, structural investor base." She added, "The growth rate of stablecoins will become an increasingly important factor in assessing future supply and demand in the U.S. short-term Treasury market."

This content was produced with the assistance of AI translation services.