In a new report that, in part, reviews the impact of digital assets, the U.S. Treasury said, "growth in stablecoins has resulted in a modest increase in demand for short-dated Treasuries."
The U.S. Treasury's 132-page report, released Wednesday and crafted for the Treasury Borrowing Advisory Committee, dedicated a short section to digital assets. The department of the federal government examined prominent digital assets like Bitcoin and stablecoins.
"Digital assets have witnessed rapid growth albeit from a small base. Growth has come both from native crypto coins like Bitcoin and Ethereum, as well as stablecoins," the department said. "Digital asset market cap remains low relative to other financial and real assets, and growth thus far does not seem to have cannibalized demand for Treasuries."
Tether, the provider of the world's largest stablecoin by market cap USDT, says it buys Treasuries with a significant amount of the capital it holds to back its token. CEO Paolo Ardoino has said Tether has more Treasury bills "compared to" the United Arab Emirates, Australia and Spain.
Holders of U.S. Treasuries: Stablecoins vs. top foreign holders. Image: Bitwise.
The U.S. Treasury said it estimates that $120 billion of stablecoin collateral has been invested in Treasuries, with Tether holding onto $81 billion worth of T-bills. The total stablecoin market is currently worth more than $177 billion, according to The Block Data Dashboard.
"Stablecoins play an integral role intermediating transactions in digital asset markets, [with] over 80% of all crypto transactions now use a stablecoin as one leg of the transaction," the Treasury said, citing The Block data.
The Treasury also weighed in on the future of stablecoins, saying that while it expects continued growth, stablecoins could encounter headwinds.
"Medium-term regulatory and policy choices will determine the fate of this 'private currency,'" the report said. "History shows that 'private currency' that does not meet [no questions asked] requirements leads to financial instability and as such is highly undesirable."
In the section where the Treasury reviewed Bitcoin, the department also said that broadly speaking, "structural demand for Treasuries may increase as the digital asset market cap grows, both as a hedge against downside price volatility and as an 'on-chain' safe-haven asset."
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