How the rise of stablecoins could stir up price swings in the $29 trillion Treasury market

Business Insider

27-05-2025

With US stablecoin legislation winding its way through Congress, investors should be aware of possible disruptions to the Treasury market stemming from the growing corner of the crypto sector.
Bank of America analysts said this week that accelerated stablecoin adoption is bound to inject demand for short-dated Treasurys, shaking up the US bond prices and volatility.
"For each $1 that leaves traditional banks in favor of stablecoins, there will be a $0.90 incremental demand for USTs," the bank wrote on Tuesday.
That's because stablecoins, a kind of crypto that's meant to hold a stable value pegged to a fiat currency, are backed by reserves of liquid assets like Treasurys. Tether — the world's largest stablecoin — held $98 billion worth of Treasury bills in its reserve assets as of March.
As Congress irons out a regulatory framework for stablecoins, current proposals would require the token to hold reserves in cash, cash equivalents, or T-bills that mature in less than three months, Bank of America wrote.
Crypto bulls have long expected a wave of stablecoin adoption if US banks are provided clear regulation on how to handle these assets. All eyes are now on the so-called Genius Act, which recently moved forward in the Senate.
Such developments have prompted upbeat takes from White House, with Treasury Secretary Scott Bessent last week saying that stablecoins could trigger $2 trillion in T-bill demand: "We are going big on digital assets."
But going big could be disruptive for Treasury holders, Bank of America noted.
"Due to the strict reserve requirements imposed on stablecoin issuers, the U.S. Treasury would likely issue T-bills at greater levels leading to a steeper yield curve," the note said.
Rising Treasury yields have already been a disruptive force in the stock market this year, but the yield curve's impact could be limited if the Treasury Department lowers the weighted-average maturities, helping meet shifting supply and demand dynamics.
Beyond the bond market, BofA warned that increased stablecoin adoption could eventually pose a risk to bank deposits, pushing value creation outside of the bank sector.