Congress Nears Stablecoin Bill Expected to Boost US Treasury Market Volatility

As stablecoins gain mainstream acceptance, their increasing use is poised to significantly impact the U.S. Treasury market, especially short-term securities. Legislation advancing in Congress would require stablecoin issuers like Tether and Circle to back tokens with highly liquid assets such as Treasury bills, potentially increasing their holdings well beyond the current $166 billion. This expansion could lead stablecoin issuers to become some of the largest buyers of U.S. debt, with projections estimating the stablecoin market might grow to $2 trillion by 2028, intensifying their influence on government debt. While some analysts argue that this could boost demand for Treasury bills and support the dollar’s global reserve status, others warn that volatility in stablecoins could trigger liquidations, depressing Treasury prices and disrupting fixed-income markets. Additionally, a shift of funds from bank deposits to stablecoins could reduce banks' demand for Treasuries, potentially affecting credit growth. The intertwining of the crypto ecosystem with traditional finance raises concerns about increased market volatility and systemic risks if stablecoin confidence falters or regulations tighten.