The US Treasury market is staring down a new threat, and it’s not coming from Wall Street or foreign governments—it’s coming from stablecoins.
According to Reuters, as the crypto world gets closer to being regulated by Congress, these dollar-pegged tokens are now crawling straight into the short-term government debt market. And if lawmakers pass the proposed stablecoin legislation, things could get messy fast.
The new rules would allow stablecoins to become even more tied to Treasury bills, which are supposed to be the safest, most liquid assets on the planet. That’s about to change.
The Senate could pass the bill as early as next week. If that happens, stablecoin issuers would be required to back their tokens with highly liquid assets like US dollars and short-term Treasuries, and also publish monthly breakdowns of those reserves.
That would force major issuers like Tether and Circle to load up on even more T-bills. Right now, those two already hold $166 billion in Treasuries between them. And they’re just getting started.
Bain & Company’s financial services team found that these issuers are becoming some of the biggest buyers of US debt, thanks to the need to match token supply with actual reserves.
Treasury officials and analysts flag potential damage
The total stablecoin market sits at around $247 billion, based on CoinGecko data. But Standard Chartered expects it to hit $2 trillion by 2028 if the legislation is approved. That kind of growth would massively expand the influence of crypto on government debt.
Cristiano Ventricelli, a senior analyst at Moody’s Ratings, said that if confidence in stablecoins drops, or if regulation hits hard, the result could be “large-scale liquidations, potentially depressing Treasury prices and disrupting fixed-income markets.”
He added that issues in the stablecoin space “could spill over into broader financial markets, affecting institutions holding similar assets or that rely on stablecoin liquidity.”
The US has $29 trillion in total Treasury securities outstanding, and $6 trillion of that are short-term bills. According to JPMorgan analysts, if current trends continue, stablecoin issuers could soon be the third-largest buyer of T-bills.
That’s a serious concentration of influence from an industry barely a decade old. And it’s making government advisers nervous.
The Treasury Borrowing Advisory Committee, a group of big banks and investors who help guide federal funding decisions, said in April that this could push banks to reduce their own purchases of Treasuries.
They also warned that if money flows into stablecoins at the expense of bank deposits, that could slow down credit growth in the broader economy.
Mark Hays, associate director for cryptocurrency and financial technology at Americans for Financial Reform, said that if issuers are forced to unload Treasuries quickly or if there’s a sudden rush for redemptions, “it could create some credit crunches.”
And Pete Crane, president of Crane Data and a long-time money market watcher, said that while money funds are keeping an eye on this, they’re not panicking yet. Still, Crane pointed out that if enough selling happens fast, “the price is going to go down,” especially since T-bills are short-dated and not usually exposed to big market swings.
Past blowups and future fears collide
There’s already history to worry about. In 2022, Tether lost its peg during a crypto crash, but it didn’t shake the Treasury market—mostly because stablecoins were still relatively small. In 2023, Circle’s USD Coin dropped below $1 after it was revealed that part of its reserves were stuck at the failed Silicon Valley Bank.
That didn’t cause major Treasury disruptions either, but both events gave regulators a preview of what could happen on a much larger scale if stablecoins go mainstream.
While the warnings pile up, some players are pushing the upside. Scott Bessent, the current Treasury Secretary under President Trump, is backing the bill, saying it could boost demand for US debt. He told lawmakers that getting a federal framework in place would “codify” the rules and help export more dollars worldwide.
That sounds great—until you remember that demand for dollars tied to crypto also means demand that can vanish fast. Matt Hougan, who runs investments at crypto firm Bitwise, said that passing the legislation would make the dollar stronger globally.
And Roger Hallam, global head of rates at Vanguard, explained that rising demand for short-term debt might push the Treasury to issue more T-bills instead of long-term bonds. He said this could “relieve some of the tensions we currently see in the market … around the scale of future issues and who’s going to buy all these bonds.”
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