Buying Dollar Coins Amid Dollar Distrust? Stablecoins Become Major U.S. Treasury Holders [Weekend Money]

Interest in Gold and Bitcoin Soars Amid Fiscal Deficits and De-dollarization
Stablecoin Growth Drives Increased Demand for U.S. Short-Term Treasuries
Expansion of Real-World Asset and AI Payments Use Cases Is Pivotal

Amid chronic fiscal deficits in the United States and mounting concerns over a weakening dollar, the so-called “debasement trade”—the search for alternative assets like gold and Bitcoin—is back in the spotlight. At the same time, dollar-based stablecoins have emerged as powerful new buyers of U.S. Treasury bills (T-bills). This represents a paradox in which trust in the dollar is waning even as the dollar-based payment network continues to expand.

Recently, Hyunkyung Yang, an analyst at iM Investment & Securities, stated, “Given the ongoing erosion of confidence in U.S. finances and the value of the dollar, the debasement trade is expected to remain valid in the medium to long term.”

Rising Fiscal Instability: “Gold & Bitcoin Instead of Cash”

The debasement trade is a strategy of purchasing real or alternative assets, such as gold and Bitcoin, to hedge against declining purchasing power of fiat currencies. As the U.S. government’s debt has exceeded 40 trillion dollars and annual interest expenses have surpassed 1 trillion dollars, this strategy is regaining traction. This is due to a worsening fiscal deficit that drives up Treasury issuance and interest costs, reinforcing the vicious cycle of growing fiscal burdens.

Demand for U.S. Treasuries from key economies such as Japan and China is also waning. The fact that the dollar has weakened even as U.S. long-term rates have risen supports the interpretation that these rate hikes are being driven less by economic improvement and more by declining confidence in U.S. fiscal policy and governance.

However, there is a difference in the supply and demand dynamics between gold and Bitcoin. Gold is steadily purchased by central banks seeking to diversify their foreign reserves, whereas Bitcoin is far more sensitive to capital flows into exchange-traded funds (ETFs) and to investor sentiment. Yang explained, “Gold enjoys price support from central banks, which are long-term buyers less sensitive to price. In contrast, Bitcoin is considerably more affected by ETF inflows and outflows, the capital-raising environment for digital asset treasury firms (DATs), and overall risk appetite in financial markets.”

Growing Dollar Coins Fuel Treasuries Buying

Paradoxically, it is dollar stablecoins that have recently helped prop up the dollar. The GENIUS Act, enacted in July of last year in the United States, requires stablecoin issuers to hold reserve assets at least equivalent to their issued stablecoins. These reserves are also restricted to safe assets such as cash, deposits, and U.S. Treasuries. As a result, every new stablecoin issuance creates additional demand for U.S. Treasuries to back the coins.

In today’s approximately 300 billion dollar stablecoin market, Tether’s USDT and Circle’s USDC account for 64% and 24% of the total volume, respectively. The two companies directly hold a combined total of 128.2 billion dollars in short-term U.S. Treasuries—more than the holdings of the United Arab Emirates or Israel. When indirect assets such as Treasury-collateralized repurchase agreements are included, the total exposure to Treasuries linked to stablecoins amounts to 203.4 billion dollars.

If the stablecoin market cap grows to 1.2 trillion dollars by 2028 and the current reserve asset allocation is maintained, the direct holdings of short-term U.S. Treasuries by issuers are expected to reach about 513 billion dollars. Should the market expand to 2 trillion dollars, this would represent 855 billion dollars in Treasury holdings, equivalent to 7-12% of the current short-term U.S. Treasury balance.

However, it will be difficult to achieve this level of growth from crypto trading demand alone. Recently, as the virtual asset market has weakened, the stablecoin market cap has stalled at around 300 billion dollars. Greater usage for real-world asset (RWA) tokenization, cross-border remittances, crypto cards, and payments among artificial intelligence (AI) agents will be necessary for further expansion.

Yang added, “Stablecoins are closer to payment and settlement infrastructure for the dollar than to investment products pursuing capital gains. The key for medium- to long-term investment decisions is whether the spread of RWA tokenization, cross-border remittances, crypto cards, and agent-based payments translates into substantial increases in transaction volumes.”

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