3 Reasons Why Crypto Dollar Is Arriving Earlier Than Expected

As the results of the last US Presidential election are analyzed by financial markets and crypto investors, an underlying fact may surprise some crypto investors, policy advocates, and entrepreneurs. Despite, or perhaps because of, the increased attention and investment the crypto economy and sector received during the last election cycle – much of which was virtually $200 million spent by crypto lobbyists – Trends towards broader adoption and use continue to accelerate. Such a statement could bring to mind examples such as spot ETF products, stablecoin issuers taking larger shares of the payments space, and even the launch of stablecoins by TradFi institutions.

The above facts and trends are true and have enabled broader and deeper integration of crypto assets across the economy, but another institution recently published a comprehensive study on the consequences, opportunities, and challenges of stablecoin adoption. October 2024 report U.S. Treasury Treasury Borrowing Advisory Committee More than 100 pages of quantitative analysis and charts on borrowing and other Treasury activities could reasonably have been overlooked in the recent deluge of media information and discourse. However, that report includes over 20 pages of charts and data analyzing the state of stablecoins, how these stablecoins are used and connected to the US Treasury market, and the benefits of tokenized Treasury activities.

Simply put, these data points paint a roadmap for how and why the U.S. Treasury can quickly and comprehensively become a major user of tokenized payments and stablecoins; Let’s take a look at a few of them.

Stablecoins Increase Treasury Demand

One of the most interesting data points presented in this report is that the continued growth and proliferation of stablecoins is also leading to increased demand for short-term Treasury securities. According to Tether’s (USDT issuer) analysis, 68.3% of the total collateral held by the organization was in the form of US Treasury Bills. In addition to the direct purchase of Treasuries as collateral for tokens by stablecoin issuers, the report also reveals another way in which stablecoins increase demand for Treasuries.

Compared to larger crypto assets and products (like spot ETFs) that provide exposure to Bitcoin, stablecoins are viewed as lower risk, meaning investors can move their dollars into these instruments during periods of market volatility. Additionally, as the digital asset industry grows, Treasuries may serve as an indirect hedge against inflation and ultimately serve as a low-volatility on-chain alternative to stablecoins.

Stablecoins may become an alternative buyer in the future, as the dollar faces increasing competition due to its role as the global reserve currency and foreign debt buyers may reallocate funds in the future.

Treasury Bonds Are Already Tokenized

Another fact that may surprise some crypto investors is that even after years of uncertain regulatory environment and adverse regulations, tokenized Treasuries currently exist, albeit at a modest level of around $2 billion. For example, tokenized treasury funds are already available to investors through funds such as Blackrock’s BUIDL Fund and Franklin Templeton’s On-Chain US Government Monetary Fund. In addition to these projects, including the one through Blackrock (also a leading player in the spot bitcoin ETF space), other options include Ondo Financial, Hashnote, and CoinShares. Alongside these projects, JP Morgan’s Onyx is leveraging tokenized Treasury securities to provide intraday Treasury-backed repo solutions; The Treasury also states that smart contracts allow for the simplification and automation of Treasury transactions.

In other words, the U.S. Treasury, while competing with other U.S. regulators and policymakers who are taking an adversarial approach, is aware of the benefits of tokenized Treasury securities as well as the fact that numerous projects already exist that leverage these benefits. Improvements to existing clearing and settlement processes, more efficient collateral management, and better transparency through tokenized records are all duly cited as benefits to the increased tokenization of the U.S. Treasury market.

Strategic Bitcoin Reserve Is Only a Partial Strategy

Much has been written about the potential of a strategic bitcoin reserve, and discussions around the idea have only increased with the election of Donald Trump as the 47th President of the United States. However exciting and arguably important such a plan and strategic initiative may be, it is only a partial solution to the problems and challenges facing the U.S. dollar and broader U.S. competitive interests. To remain competitive on a global basis, attract the talent needed to succeed, and lead the diverse industries of the future (including blockchain and tokenized transactions), the U.S. policy apparatus will need to embrace a multifaceted approach to tokenization. A strategic bitcoin reserve is an excellent first step toward broader integration of tokenized transactions, but leveraging tokenization and blockchain transactions to improve expanding U.S. Treasury markets is a key component of any U.S.-focused crypto plan.

The crypto dollar is almost guaranteed and could reach mainstream adoption sooner than many crypto investors expect.