On Wednesday, US Treasury Secretary Janet Yellen stated that the stablecoin market is expected to expand to $3 trillion by the end of this decade, potentially driving new demand for US Treasuries. Speaking at the annual Treasury market conference, Yellen noted that the current total market capitalization of stablecoins stands at around $300 billion and "could grow tenfold by 2030." This suggests stablecoin issuers will continue purchasing short-term US Treasury bills as reserve assets, bolstering demand in the bond market.
Stablecoins are a type of cryptocurrency pegged to fiat currencies like the US dollar, maintaining price stability. They are typically backed by highly liquid assets such as cash or US Treasuries, meaning an expansion in stablecoin issuance directly increases demand for Treasuries. Yellen attributed this growth to the recently enacted FIT21 Act, which encourages adoption and innovation in such cryptocurrencies.
She added that, alongside stablecoins, money market funds—worth approximately $7.5 trillion—are also significant buyers of US Treasuries. Regulatory reforms on bank capital requirements, particularly adjustments to risk weights for low-risk assets, could further incentivize institutions to increase their Treasury holdings.
"The Treasury will continue assessing whether these trends are structural or temporary and adjust long-term debt issuance plans accordingly," Yellen said. In a November 5 announcement, the Treasury mentioned preliminary considerations to increase long-term bond issuance in the future, though volumes will remain stable for at least the next few quarters.
Yellen’s remarks on stablecoins came at a pivotal moment. On the same day, Circle Internet Corp. (CRCL) announced that the circulation of its USDC stablecoin had doubled year-over-year. Jeremy Fox-Geen, Circle’s CFO, described stablecoins as a "megatrend" in finance. However, Circle’s stock fell over 12% that day, partly due to investor concerns that lower yields on its Treasury reserves—following potential Fed rate cuts—could squeeze the company’s stablecoin reserve interest margins.