Analysis of Market Divergence and Impacts After Stablecoin Legislation in the United States

Recently, the United States passed its first stablecoin legislation—the GENIUS Act. However, there is significant divergence on Wall Street regarding whether stablecoins can truly boost the demand for the US dollar and bring new buyers to short-term US Treasury bonds. Strategists from well-known institutions such as JPMorgan, Deutsche Bank, and Goldman Sachs all believe that it is still too early to view this as a 'structural change' in the market.

In terms of funding sources, stablecoin funds primarily come from money market funds, bank deposits, cash, and offshore dollars. However, the GENIUS Act stipulates that stablecoins cannot pay interest, which undermines the incentive for yield-sensitive funds to move out of savings accounts and money market funds. Therefore, even if the scale of stablecoins expands, the net demand for Treasury bills may be more of an adjustment in holder structure rather than substantial new demand.

On the other hand, if the dollars related to stablecoins are considered liabilities of the Federal Reserve, the Fed may correspondingly reduce its Treasury asset holdings. This move will somewhat offset the incremental demand brought by stablecoins.

Moreover, the current federal debt of the United States has exceeded $30 trillion, and it is expected to increase by another $22 trillion over the next decade. Under such heavy debt and deficit pressures, stablecoins are unlikely to fundamentally alleviate the fiscal predicament of the United States.

Overall, although stablecoin legislation has brought some imaginative space to the market, under the current circumstances, its actual impact on the demand for the US dollar and the US Treasury market may be limited, and all market participants should remain cautious in observing subsequent developments.

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