Fed Governor Barr Warns GENIUS Act Risks Bitcoin Loophole in Stablecoin Reserves

Federal Reserve Governor Michael S. Barr has raised concerns about the GENIUS Act, a newly enacted U.S. law that provides a regulatory framework for stablecoins, highlighting potential risks related to the inclusion of Bitcoin as a permissible reserve asset. The Act allows stablecoin reserves to include overnight repurchase agreements backed by "any medium of exchange authorized or adopted by a foreign government," which could include Bitcoin due to its legal tender status in El Salvador. Barr warned that Bitcoin's price volatility could undermine the one-to-one backing of stablecoins, risking financial stability and investor confidence. He emphasized the need for regulators to carefully implement the law's provisions to prevent regulatory arbitrage and systemic risk, as fragmented oversight between federal and state authorities could lead to inconsistencies. The GENIUS Act marks a significant regulatory milestone but is seen as a foundational statute requiring detailed rulemaking to ensure a stable and trustworthy stablecoin ecosystem. Overall, Barr and other officials urge caution to balance innovation with financial system safety, noting that the success of the GENIUS Act depends heavily on how its regulatory gaps are addressed.