Is the GENIUS Act a smart move to protect US Treasury securities and shield the dollar hegemony? President Donald Trump and his administration have advanced cryptocurrencies, from establishing a strategic bitcoin reserve to putting in a crypto-friendly individual as head of the Securities and Exchange Commission. However, the latest piece of legislation that garnered bipartisan support in the upper chamber could be more debt and the dollar than crypto.
Feeling Smart About the GENIUS Act
Senators voted 68 to 30 in favor of the Guiding and Establishing National Innovation for US Stablecoins Act. White House officials and Republican lawmakers touted the benefits of the GENIUS Act, noting that it is a regulatory framework necessary for the banking, finance, and DeFi sectors interested in engaging in the $200 billion stablecoin industry.
What is a stablecoin anyway? Unlike Bitcoin, Ether, or Dogecoin, a stablecoin is a far less volatile cryptocurrency that is pegged to another asset, primarily the US dollar or a Treasury security. Users will dedicate their stablecoins to a diverse array of facets of commerce, whether payments or investing. The two main types of stablecoins are Tether (USDT) and Circle's USDC, which account for more than half of the $200 billion market.
On the surface, proponents argue that the GENIUS Act is crucial to fostering innovation, facilitating competition, and ensuring the United States remains at the forefront of the international cryptocurrency business. The cryptocurrency sector welcomed the legislation, as it provided a clear outline of rules and regulations.
However, another group of individuals might be pleased: taxpayers and consumers.
Curb Your Borrowing Costs
A recent study suggested that stablecoins could become a $3.7 trillion market within the next five years. Is this realistic? As Elon Musk has said, investors tend to overestimate the short-term and underestimate the long-term. Treasury Secretary Scott Bessent believes the path to surpassing $3 trillion is plausible due to the GENIUS Act.
Ahead of the vote, Bessent encouraged lawmakers to support the crypto bill. “This newfound demand could lower government borrowing costs and help rein in the national debt. It could also onramp millions of new users — across the globe — to the dollar-based digital asset economy,” Bessent stated on the social media platform X.
Indeed, since stablecoins are tethered to US government debt, higher demand for these cryptocurrencies would inevitably lead to a decline in yields on Treasury securities.
A key challenge for the US government over the last couple of years has been the uncertainty surrounding the appetite for Treasurys, driven by consternation about America’s deteriorating fiscal health. Under the previous administration, then-Treasury Secretary Janet Yellen flooded the financial markets with trillions of dollars in new bond supply. This has been difficult for the investment community to absorb, as evident in the divergence between demand from domestic and foreign investors and the large number of disappointing auctions.
Uncle Sam has breathed a sigh of relief this month as the ten- and 30-year Treasury auctions were better than expected. Traders – at home and abroad – wanted to feast on US debt. This helped the benchmark ten-year yield to stabilize at around 4.4% and the 30-year yield to fall below 5%. However, how long can Washington continue to avert disaster?
That said, if stablecoins can stimulate the Treasury market and bring down yields, it would lead to lower borrowing costs not only for the federal government but also for consumers. Indeed, interest rates on various credit instruments track the Treasury market, whether mortgages (ten-year) or auto loans (five-year). So, when President Trump and Bessent said earlier this year that they care more about the ten-year than what the Federal Reserve says or does, their endorsement of the GENIUS Act could be one part of the equation.
By Any Means Necessary
The Treasury market has had regular freak attacks. However, what has been overlooked in the various analyses surrounding the volatility in government bonds is that the ten-year yield is approximately 20 basis points lower than at the start of the year and remains flat compared to a year ago. If stablecoins can contribute to lower interest rates, even if half the country is unaware of what they are, then politicians might have finally spearheaded a genius move.
The consequence, however, is that citizens’ privacy could be violated, and stablecoin supply could be concentrated in the hands of a small few in Big Tech. Being indebted has its risks.
