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The U.S. Treasury Department has identified an increased demand for short-term government bonds linked to the rise of stablecoins, according to a newly published 132-page report.
Prepared for the Treasury's Borrowing Advisory Committee, the report examines the impact of digital assets such as Bitcoin and stablecoins on the broader financial landscape.
In the report, the Treasury noted that “growth in stablecoins has led to a modest increase in demand for short-term Treasury securities.” It acknowledged that the digital asset market, while still relatively small compared to traditional assets, has grown significantly in recent years. “Digital assets have witnessed rapid growth from a small base,” the Treasury Department said, noting that while this growth has not yet replaced demand for Treasury securities, it has affected the market in other ways.
A notable example of this trend is Tether, the world’s largest stablecoin by market cap. Tether reportedly holds a significant portion of its reserves in U.S. Treasury bonds, with CEO Paolo Ardoino claiming the company owns more Treasury bonds than countries like the United Arab Emirates, Australia, and Spain. According to Treasury estimates, there is currently around $120 billion worth of stablecoin collateral invested in Treasurys, with Tether accounting for $81 billion of that total.
As of now, the entire stablecoin market is valued at over $177 billion. Stablecoins play a crucial role in the digital asset ecosystem, mediating over 80% of all crypto transactions. Their stable value compared to other volatile crypto assets has made them a popular choice for traders looking for a reliable intermediary currency.
Despite the positive impact stablecoins have had on the Treasury market, the report also pointed to potential challenges on the horizon. The Treasury Department noted that the future of stablecoins will largely depend on regulatory and policy decisions in the coming years. “Medium-term regulatory and policy choices will determine the fate of this ‘private currency,’” the report warned, noting the historical risks of privately issued currencies failing to meet certain standards.
Touching on Bitcoin alongside stablecoins, the report noted that structural demand for Treasury bonds could increase as the digital asset market continues to grow. Bitcoin could potentially act as a hedge against price volatility and an “on-chain” safe-haven asset, further connecting the crypto market to traditional financial instruments.
*This is not investment advice.