- Schiff warns stablecoins don’t add liquidity but shift capital, risking weaker demand for long-term U.S. bonds.
- He says stablecoin issuers earn interest, not users, unlike money market accounts, impacting investor returns.
- Rising stablecoin use may raise long-term yields and hurt credit access, despite contrasting views from BlackRock.
Peter Schiff has raised an alarm about an emerging discourse within the crypto ecosystem that stablecoins are increasing the demand for U.S. Treasury bonds. To him, the stablecoins are not pumping new liquidity into the financial system but merely redistributing the capital that is already in existence.
He cautioned that such a transfer of capital may decrease the demand for long-term government bonds and eventually increase the cost of borrowing funds by consumers and companies.
Recently, in a post on X, Schiff described how the rise of stablecoins would impact conventional financial positions. According to him, the funds that investors would transfer to stablecoin accounts in conventional money market accounts do not generate new demand, but simply reallocate capital ownership.
Stablecoins Bypass Investors in Treasury Gains
Such money is frequently realized by stablecoin-emitting foundations that are apt to purchase U.S. Treasuries, especially short-term securities. But Schiff noted that such securities would have probably been bought by money market funds anyway. To him, the inflow into stablecoins only pushed the existing buyers of Treasuries.
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Another important point made by Schiff is that the interest gained by these securities goes to the issuing firms, and not the people holding the digital assets. In contrast to the money market accounts, in which investors are entitled to the interest, the users of the stablecoin lose this profit to the issuer.
He cautioned that such a framework can have wider implications for the bond markets. The companies largely invest in short-term Treasuries, and this can weaken the demand for long-term bonds. The long-term yields, which were previously mentioned by Schiff, could be increased by this, a fact that will directly influence the mortgage rates and other types of long-term loans.
Due to these high long-term yields, it costs the borrowers more. Schiff explained that this can hamper economic growth as this will increase the costs of purchasing homes by households and expansion by businesses. He also included that funds are not accessible to lending through traditional banks.
Stablecoins Face Growing Regulatory Heat
This diversion of funds may decrease the amount of funds that can be lent by the private sector. In the long run, this may limit access to credit and productive investment. Increased popularity of the digital assets, Schiff cautioned, could have consequences befalling credit markets without being intentional.
The contrast of these is his evaluation, which is radically opposite to those that are held by the largest asset manager in the world, which is BlackRock. In a recent report, BlackRock wrote that stablecoins will become one of the most significant remodelers of the financial market in the future. That is because of the manner in which they facilitate liquidity and enable accessibility to United States dollar resources in the international economy.
However, those sharing the same opinion as Schiff state that tokens have the potential to destabilize traditional finance in case they are not controlled during the development process.
The U.S. regulators have since become more interested. The passage of the GENIUS Act can be considered a landmark event concerning the approval of crypto-related legislation in the U.S., with the next big target of the regulators being stablecoins.
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