the US is over $36 trillion in debt and this
figure is projected to increase by $2 trillion this year and the number of buyers of this debt
well it’s decreasing if this doesn’t change the US debt bubble could finally burst believe it
or not but stable coins could be the solution the stable coin issuers have bought more than $60
billion of US debt in recent months and the Trump administration is keen to grow this number and
that’s why today we’re going to explain exactly what the debt problem is why stable coins
could be part of the solution how they’re going to grow when this could happen and which
cryptos could benefit my name is Nick and you’re watching the Coin Bureau let’s start where we
left off uh we recently did a video about the Trump administration’s plan to lower long-term
interest rates and if you watched that video you’ll know that they basically must implement
this plan before the current debt ceiling is raised and this de facto deadline is currently
projected to be sometime in August for context the US government hit its debt ceiling in January
this year hitting the debt ceiling means that the US government cannot issue any additional debt the
effects of this are a bit paradoxical on the one hand it means that the US government could run
out of money and essentially stop functioning on the other hand though the inability of the US
government to issue more debt effectively amounts to stimulus which is good for the markets this
is in part because less debt issuance means more money going into other assets since there’s less
money moving out of other assets into newly issued bonds for reference bonds can be simply understood
as IUS that the US government sells to its investors or once upon a time they were literally
physical IUS and they promised to pay the holder the value of the bond plus interest at some future
date of course bonds can be traded on secondary markets and the interest rate aka the yield on the
bond is determined by the price lower price means a higher yield and of course vice versa anyways
another part of why hitting the debt ceiling is stimulative is because the US government is
forced to spend money from its bank account at the Federal Reserve known as the Treasury General
Account or TGA for short since this was money that was sitting on the sidelines that is practically
being injected back into the economy it results in a net increase in liquidity overall which is good
for the markets the catch is that when the debt ceiling gets raised they will need to refill the
TGA assuming the TGA is close to empty when this happens then it will result in a massive liquidity
drain uh because the US government will need to issue roughly $800 billion of new debt in a very
short period of time notably most of the debt used to refill the TGA would be purchased by commercial
banks in the US and this would reduce the amount of money they have on hand for their day-to-day
operations potentially risking a banking crisis and this is why the Fed recently announced it
would significantly be reducing its QT for those unfamiliar QT stands for quantitive tightening and
it’s when the Fed reduces the size of its balance sheet contrary to popular belief this does not
include selling bonds rather it involves buying gradually fewer bonds as older bonds mature
i.e get fully paid back as such the practical effect of QT is that the Fed buys gradually fewer
bonds which means other buyers must step in to fill the gap and as we just learned these other
buyers would mostly be commercial banks and if there’s lots of bonds being issued then their
cash reserves could be drained to a level that threatens financial stability as such the Fed made
the decision to reduce QT to next to zero and the practical effect of this is that the Fed is buying
gradually more US bonds than it was before which has a stimulative effect on the markets and by the
way guys this is very important if you’re enjoying recap the US debt ceiling needs to be raised by
sometime in August otherwise the US government could default on its debts between now and then
it needs to find buyers for the $800 billion of bonds it will need to issue to refill the TGA
obviously this is something that the Fed could do but if it did it would destroy the credibility of
US bonds as assets and the US dollar as a currency usually banks would buy these bonds but they don’t
have enough cash on hand to buy them all without risking a banking crisis and the last time the
debt ceiling was raised in 2023 investors who had money in the Fed’s overnight reverse repo facility
bought most of the bonds issued to refill the TGA and FYI the overnight reverse repo facility
or RRP for short is just a place where other Traders can keep money at the Fed as some of you
will know the RRP has mostly been drained meaning it can’t come to the rescue this time either if
that wasn’t bad enough foreign investors have also been reducing their purchases of the US bonds
with fewer domestic and foreign buyers it’s hard to see how the Trump administration will be able
to issue $800 billion of bonds without disrupting the markets come August but as noted in the
introduction stable coins could be the solution now for those unfamiliar stable coins are crypto
tokens that are pegged to fiat currencies mostly the US dollar and what’s interesting about stable
coins is that they’re backed by US bonds much like money market funds the difference is that money
market funds share some of the bond yields with investors whereas stable coins do not anyhow the
key takeaway is that stable coins are backed by US bonds and this means that when someone buys
a stable coin the issuer of the stable coin needs to buy an equivalent amount of US bonds
to back the stable coin token as I noted also in the introduction uh stable coin issuers have
purchased more than $60 billion of US bonds over the last year or so mostly UST issuer Tether and
USDC issuer Circle to put things into perspective Tether alone was the seventh largest buyer of US
bonds globally in 2024 putting it on par with the United Kingdom and this begs the question of why
stable coins are growing so much and the answer depends on the stable coin because each stable
coin has its own use case in USDT’s case it’s primarily used for crypto trading especially
altcoin trading and leveraged trading uh the more people that want to speculate on altcoins or
trade crypto with leverage the greater the demand for USDT and the more bonds that Tether needs to
buy to back these stable coins the caveat is that USDT isn’t just backed by US bonds it’s backed
by other assets too but uh let’s not go down uh that rabbit hole now in USDC’s case it’s used
primarily in DeFi especially in borrowing and lending and if you watched our video about how the
crypto market works you’ll know that the crypto whales will often use their BTC and ETH holdings
as collateral to borrow stable coins usually USDC in turn this USDC gets invested into altcoins
which eventually drives more altcoin trading and leverage on exchanges so more USDT demand on that
note what’s fascinating is that Trump’s memecoin was launched on Salana with USDC as the primary
trading pair and this meant that everyone who wanted to buy the Trump memecoin first had to buy
USDC either directly or indirectly via some other crypto like soul the result was that the supply of
USDC on Salana exploded by$2 billion dollars in a matter of days with billions of US bonds bought
to back it it’s not just alcoin speculation and DeFi degeneracy driving demand for stable coins
either in case you missed the news PayPal the world’s largest payment processor is aiming to get
20 million merchants to use its PYUSD stable coin by the end of the year bank of America is also
planning on launching a stable coin and Fidelity is on the brink of doing the same both are just
waiting for regulatory clarity when you realize that there are over 200 stable coins and counting
and that some are likely to grow exponentially when there’s regulatory clarity you start to
understand that stable coins could in fact be used to raise hundreds of billions of dollars required
to refill the TGA before the debt ceiling gets raised sometime over the summer the craziest part
is that this could all theoretically happen on time it’s the place to be when you’re in need of
amazing crypto deals and opportunities it’s got need to buy for the TGA to be refilled without
disrupting the market and we can use the TGA draw down and refill to get the answer uh to refresh
your memory the last time the dead celene was hit was in January 2023 it was raised at the last
minute in June 2023 and the TGA then quickly refilled between June and October over four to
five months as a fun little fact the reason why August is the deadline for the debt ceiling to be
raised at this time has mostly to do with the fact that 2024 was a big tax year mostly because the
markets were up bigly in 2024 and this means that the TGA will be partially refilled in April due
to the tax season just like it was in April 2023 the difference is that the 2023 refill was small
mostly because the markets were down badly in 2022 in any case this is where the macro gets
truly intriguing you’ll recall that the RRP was used to refill the TGA after the debt ceiling
was last raised in 2023 and you’ll hopefully recall that the TGA refill occurred between June
and October 2023 as you can see the RRP facility fell by roughly $1.2 2 trillion during this period
at first glance this seems a bit excessive because the TGA refill was only $800 billion but upon
closer inspection you realize that most of the remaining $400 billion that went out of the
RRP facility went towards buying the bonds the Fed was no longer buying due to QT as you
can see the Fed’s balance sheet fell by roughly $400 billion between June and October 2023 it’s
a match in case you forgot the Fed isn’t really running down its balance sheet this time now to
all intents and purposes QT has ended and this means that $800 billion is all the US government
will need to refill the TGA although this capital is likely to come from multiple sources it looks
like stable coin issuers could be the big buyers while it’s not possible to know how big stable
coins could grow it’s possible to estimate at the start of the previous crypto bull market the total
market cap of the largest stable coins was roughly $7 billion by the end of the bull market the
total market cap had grown to over 140 billion over 160 billion if you include Terra’s US stable
coin and some measures put this figure as high as 180 billion but let’s call it 140 billion to be
conservative that’s 20x growth in supply if we assume diminishing returns in stable coin growth
akin to what we see in large cap cryptos like Bitcoin then the total supply of stable coins
could grow by about 10 times and this sounds insane until you examine each major stable coin
individually starting with USDT you’ll remember it is primarily used in crypto trading and
if you watched our recent video about retail investors you’ll know that the total number of
crypto investors could as much as triple this cycle assuming most of these crypto investors
use USDT to buy sell or trade then this means that USDT supply could triple from its starting
point of 100 billion bringing its supply close to 300 billion next we have USDC which you’ll
remember is used primarily in DeFi according to DeFi Llama the total value locked in DeFi rose
by 10 times in the previous cycle while USDC’s supply simultaneously grew by 20 times with the
president of the United States literally launching his own DY protocol the chances are that the total
value locked in DY will rise considerably this cycle not 10 times but perhaps closer to three
to five times given that USDC supply seems to grow twice as much as the overall DY TVL this
foreshadows a 6 to 10 times increase in USDC supply with a starting point of around 40 billion
this would translate to a USDC supply between 240 to 400 billion by the end of the crypto bull
market and this isn’t that far-fetched when you consider that USDC is increasingly being used
for trading and payments in select jurisdictions speaking of which PayPal’s PYUSD stable coin is
the real wild card from our perspective consider that PayPal processed almost $1.7 trillion in
payments last year and now remember that it wants 20 million merchants using PYUSD by the end
of the year if just 5 to 10% of PayPal’s payments were made using stable coins it would translate
to tens or hundreds of billions of dollars being minted when you combine these three stable coins
with the coins being launched by mega banks like Bank of America asset managers like Fidelity and
other large players in the crypto industry like Ripple you get a number that’s surprisingly close
to the $800 billion cash pile required to refill the TGA all that’s missing is sensible stable coin
regulations which are of course working their way through Congress as you watch this video uh to
bring you up to speed there are not one but two stable coin bills going through Congress one
in the Senate and one in the House both are still in the early stages though the stable coin
bill in the Senate is called the Genius Act and it was recently approved by the Senate Banking
Committee the next step is for the bill to be voted on by the Senate as a whole if approved by
the Senate it will go to the House and if it’s approved by the House it will go to the President
to be signed into law meanwhile the stable coin bill in the House is called the Stable Act and
it was recently introduced to the House Financial Services Committee the next step is for it to be
voted on by the committee and if approved it will be voted on by the House as a whole if approved
by the House it will go to the Senate and if it’s approved by the Senate then it will go to the
president to again be signed into law the Genius Act is arguably the more superior bull of the
two at least as far as refilling the TGA goes and that’s because it has fewer restrictions compared
with the Stable Act for example the Genius Act allows for experimentation with decentralized
stable coins whereas the Stable Act calls for a 2-year ban on decentralized stable coins the
thing is that most decentralized stable coins are also backed by US bonds it goes without saying
that this doesn’t make them very decentralized but uh let’s not get into that debate anywh who
it’s not entirely clear how these two stable coin bills will interact earlier reports
noted that both would be passed but it’s clear that they’re going to be incompatible on key
points and this could set the stage for lots of debate between both houses of Congress as they
wrestle over which stable coin bill to approve it’s also possible that they could opt to
combine them but this remains to be seen one of these bills is expected to be approved
by August but it looks like this could happen much sooner and that’s because these bills are
being passed independently of any larger bills and because there’s a pro- crypto supermajority in
both houses of Congress and this means that there won’t be any issues passing one of the stable
coin bills but as I just noted there could be tensions over which stable coin bill will win
for what it’s worth the goal is to have stable coin regulations passed within Trump’s first 100
days in office and that’s April 29th for anyone counting and if stable coin regulations were
to pass by this deadline or around that time there would be 4 months for the powers that be
to grow the stable coin supply as big as possible and this may not be enough time to get the cash
required to refill the TGA but it could be close enough and this brings me to the big question
and that’s which cryptos could benefit from the upcoming stable coin frenzy finding the answer is
surprisingly straightforward all we need to do is look at the blockchains that the biggest stable
coins are on and the blockchains where current and existing stable coins are growing the most
this information can be found on websites of the issuers of the stable coins in the case of USDT
the most popular blockchains are Ethereum Tron and Salana however USDT appears to be growing the
fastest on Toncoin Aptos and soon on Ethereum’s layer 2s with the recent launch of USDT0 and
Optimism Super Chain Collective which consists of multiple layer 2 that leverage optimism’s tech
in the case of USDC the most popular blockchains are Ethereum and Salana with Bass and Arbitum tied
for third as another fun fact the main reason why there’s so much USDC on Arbitum is because that’s
how USDC is bridged into Hyperlquid which we recently reviewed the TLDDR is that Hyperlid is a
derivatives DEX that’s been growing in popularity and this has created significant demand for
USDC it should come as no surprise then that USDC seems to be growing the most on Hyperlquid
as well as Salana Sui Apto Barerchain and Sonic which we also recently reviewed it looks like
Circle is focusing on deploying USDC to newer chains that are experiencing the most growth which
is a very sound strategy in the case of PYUSD its most popular blockchains are Ethereum and Salana
and PayPal has been explicit in its intentions to use Salana as the primary payment rails for
its stable coin i’d also be remiss if I didn’t mention Ripple’s RLUSD stable coin which exists
mostly on Ethereum and XRP and if you’ve been keeping up with our XRP updates you’ll know
that XRP is in the process of launching an EVM compatible side chain it’s expected that this
side chain will eventually host most of the RLUSD in circulation and this makes sense as it will
be more programmable and interoperable with the rest of crypto from our perspective the growth
of RLUSD and its impact on XRP its ecosystem and the broader crypto market is one of the most
underpriced factors in crypto right now xrp has a market cap well over $100 billion with millions
of holders who would prefer to borrow against their XRP rather than to sell it the result could
be tens of billions of stable coins being minted using XRP as collateral and this would be a
massive injection of cryptonative liquidity that would seamlessly flow throughout the crypto
ecosystem particularly on other EVM chains like Ethereum thanks to XRP’s EVM side chain not
shilling XRP here just pointing out that this is a massive bullish factor that everyone seems
to be overlooking and that reminds me it’s easy to forget that it won’t just be layer 1 cryptos
that benefit from the increase in stable coin supply and activity the altcoins on these layer 1
will benefit as well due to the overall increase in onchain liquidity as well as the increase
in value of the native crypto of that layer 1 this is exactly what we’ve seen historically with
most major smart contract cryptos like Salana and Ethereum when ETH also pumped altcoins on Ethereum
and Salana would also pump and this would attract more altcoin speculation which I’ll remind you
is what the Trump administration wants the more crypto speculation there is the more demand there
will be for stable coins and of course the more US bonds get bought say it’s almost as if that
was the plan all along all that’s left to figure out now is which crypto niches and narratives will
perform the best and you can check out our recent video about that right over here and if you’re
not subscribed to the channel yet you can do that right over here this is Nick signing off thank
you very much for watching i’ll see you again soon
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