When it comes to hoovering up US government debt, you normally look at nation states — China, Japan, the UK — and major corporations such as Warren Buffett’s Berkshire Hathaway.
They tend to be the entities that park billions in the ultra-low risk bonds issued by Washington.
But now there’s a new entrant in the field that is poised to leapfrog them all — crypto industry’s stablecoin issuers.
In a report released this month, Citigroup estimates that Tether, Circle, and other issuers of dollar-pegged cryptocurrencies may hold $1.2 trillion in US Treasuries in their reserves by 2030.
The analysts took note of a raft of developments that are transforming the stablecoin market from a sleepy corner of the crypto field into a world-dominating dynamo.
At the top of the list are mounting hopes that Congress will pass landmark legislation laying out a framework for stablecoins.
If approved — and President Donald Trump, whose family backs a stablecoin itself, is expected to sign a bill into law — long sought regulations governing the asset will be drafted and implemented.
In their current form, the bills require that dollar-pegged digital tokens be backed by low risk real assets such as cash, or cash equivalents, which includes Treasury bonds.
Tether, which issues USDT, the dominant stablecoin, already manages $113 billion in US government debt in its reserves. And Circle, the issuer of the USDC stablecoin, holds $21 billion in US Treasuries.
But should a stablecoin bill pass, every other stablecoin issuer that wishes to serve US customers will probably have to buy Treasury bonds as well.
It’s a striking development, but then again, stablecoins, long the plain vanilla entrant in the crypto race, have lately become red hot.
This week, the value of stablecoins hit a record $237 billion, according to DefiLlama data. Citigroup analysts estimate the stablecoin market is on course to reach up to $3.7 trillion in value in five years.
To be sure, there are a number of factors that could upset stablecoins’ upward trajectory. Trump’s aggressive tariff regime has already damaged confidence in the US dollar as the global reserve currency.
That could spur other nations, as well as stablecoin issuers, to hedge their bets by supporting alternatives such as the euro, the renminbi, and even Bitcoin.
It would follow then that stablecoin issuers would turn to other low-risk assets to back their tokens. Some stablecoins already use gold to back up their tokens.
“Geopolitics remain fluid,” the Citi analysts said. ”China and Europe will be keen to promote central bank digital currencies or stablecoins issued in their own currency.”
And there are other risks.
In 2022, Terra’s UST stablecoin slipped its peg to the dollar and deepened a bearish run that was already underway with falling Bitcoin prices at the time.
Circle, too, had a close call in 2023 when Silicon Valley Bank collapsed. The company had parked more than $3 billion in deposits at the failed lender and it took months to restore confidence with USDC users.
Indeed, one of the reasons Circle welcomes the stablecoin legislation under consideration in both the Senate and the House of Representatives is that it would bring much needed clarity to the rules of stablecoin usance and management in the US.
It would also bolster confidence in the entire sector.
Andrew Flanagan is a markets correspondent for DL News. Have a tip? Reach out to aflanagan@dlnews.com.