A New Chapter in U.S. Debt Strategy
Amidst the bustling corridors of Washington, a quiet yet significant shift is underway in how the United States approaches its towering $37 trillion debt. The Trump administration’s recent crypto-friendly gestures are not merely a nod to Silicon Valley or a belief in blockchain’s efficiencies. At the heart of this pivot lies a pressing need: finding new buyers for U.S. Treasuries as traditional foreign investors pull back.
China and Japan, once steadfast purchasers, have been reducing their holdings of U.S. Treasuries. With interest rates hovering above 4%, the U.S. Treasury Department, led by Secretary Scott Bessent, is seeking innovative solutions to maintain demand. Surprisingly, Bessent has pinpointed an unlikely ally in the form of stablecoins, which are emerging as one of the fastest-growing sources of U.S. debt demand.
The Rise of Stablecoins as Treasury Buyers
Stablecoins, digital tokens pegged to the U.S. dollar, have quietly become significant holders of U.S. Treasuries. The math behind this is compelling: for every dollar deposited into stablecoins, approximately $0.90 finds its way into Treasuries. In stark contrast, only around 11% of U.S. bank deposits cycle into Treasuries. This makes stablecoins a uniquely efficient channel for Treasury demand.
Tether, the largest stablecoin issuer, now ranks among the top 20 holders of U.S. Treasuries, with over $125 billion in U.S. debt. Circle, the issuer of USDC, closely follows. Combined, these two players hold more Treasuries than some sovereign nations, marking a seismic shift in how digital assets are perceived and utilized.
Legislative Support and Strategic Moves
The Trump administration’s support for stablecoins is no coincidence. The recently passed GENIUS Act mandates that stablecoins be backed one-for-one with cash or short-term Treasuries, ensuring that inflows bolster government debt. This legislative move is complemented by the Digital Asset Market Clarity Act, which offers a federal framework for crypto investment.
Secretary Bessent has been vocal about the potential of stablecoins to boost U.S. government debt demand and reinforce the U.S. dollar’s global dominance. Additional strategic moves, such as creating a Strategic Bitcoin Reserve and a broader U.S. Digital Asset Stockpile, further signal the administration’s intent to weave digital assets into its financial strategy.
Moreover, an executive order now prevents banks from blocking crypto transactions, reducing barriers for both retail and institutional investors. Another rule change permits 401(k) retirement savings to invest in digital assets, opening up a powerful new capital channel. Each of these initiatives reduces the perceived risk of crypto, attracts new participants, and ultimately channels more dollars into stablecoins—and by extension, into Treasuries.
Challenges and Potential Risks
Despite the momentum behind Bessent’s strategy, it is not without risks. Stablecoins, while growing, remain small compared to the $50 trillion U.S. financial system, and their demand is subject to market sentiment. A downturn in crypto adoption or a shift in sentiment could swiftly shrink the Treasury bid, leaving Washington scrambling for buyers once again.
Furthermore, the mechanics of stablecoin reserves may lead to unintended consequences. Issuers are restricted to holding only cash and short-term Treasuries, concentrating demand at the front end of the yield curve. This could skew issuance away from longer-dated bonds, potentially reshaping the maturity profile of U.S. debt in unforeseen ways.
Banks, too, are likely to push back against the rise of stablecoins. The migration of deposits into stablecoins threatens their business model, which relies on capturing the yield on U.S. dollars. Although the GENIUS Act prevents stablecoin issuers from offering yield-bearing tokens, workarounds are being explored, setting the stage for a competitive battle over who captures the yield on stablecoin-backed dollars.
A Pragmatic Approach with Uncertain Outcomes
While some may view the Trump administration’s crypto pivot as a play for innovation or Silicon Valley support, the reality is more pragmatic and urgent. Stablecoins are positioned as a Trojan horse for Treasury demand, channeling global dollars into U.S. debt more efficiently than banks or foreign sovereigns.
Whether this strategy will succeed or lead to another financial bubble remains uncertain. However, it reframes the debate on crypto’s role in the economy. In Washington’s eyes, stablecoins are not a mere sideshow; they could be the ballast that keeps America’s debt engine running smoothly. As the situation unfolds, the eyes of the world will be on how this innovative approach affects the broader financial landscape.
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
