Do you remember the old E.F Hutton ads?

This was a Wall Street brokerage house that gained a lot of attention with the "when E.F. Hutton talks, people listen" campaign.

Here is one of their commercials.

I bring this up because the Fed Chair tends to be the same way. He has the ears and when he (she) speaks, markets listen.

Often we see the Fed Chair trying to foreshadow policy, in hopes markets will do the heavy lifting. It is an effective strategy since many front run the Fed.

Today's articles is not about markets. Instead, we are focused upon the words Powell spoke regarding cryptocurrency.

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Fed Chair Powell: Bank Regulations Regarding Crypto Will Loosen

The pro-crypto sentiment is certainly sweeping the United States. We are seeing many institutions related to financial and banking regulation opening up to the prospects of a much broader industry.

Powell is no exception to this trend.

For years, he was adamant that the Federal Reserve would not issue a CBDC. With regards to crypto, that was as far as he went. This year is a different story.

His stance now is that a loosening on the banks with crypto is likely in the future.

"We took a pretty conservative, other bank regulators took an even more conservative perspective on the guidance and rules we imposed on banks," Powell said. "I think there will be some loosening of that."

"We'll try to do it in a way that preserves safety and soundness, but that permits and fosters appropriate innovation, but does so in a way that again doesn't put consumers at risk in ways they don't understand or make banks less safe and sound," he added.

Not surprisingly, one of the topics Powell touched upon in his speech as stablecoins. This is the mecca for regulatory focus within the United States. We are looking at the probable passage of legislation this Summer. That means the banks will be open to getting involved.

"Stablecoins are a digital product that could actually have fairly wide appeal and should contain consumer protections of the typical sorts and transparency, and that's what the Senate and the House are working on," he said.

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My guess this is the first tier where the banks make their entry.

Stablecoin Issuers

It makes sense for the banks to start their own stablecoins. We are looking at free money for them.

They rake in deposits on a daily basis. These liabilities are either lent out or used to purchase government approved securiities.

We see the outline through stablecoin issuers such as Circle. Stablecoins are "bought" from the company, swapping 1 USD for a stablecoin. The dollars are then used to purchase T-bills, earning the issuer a return.

Banks will love this idea. The banking system has the means to further their returns by having their networks operate using stablecoins. They can offer expanded payment systems which reach outside their platforms, swapping with the coins of other issuers. The collective of this is going to swallow up US T-bills, providing a payout to all issuers.

My view is that the stablecoin market will exceed the total number of USD banknotes that are outstanding. Presently that is roughly $2.3 trillion.

When we consider the might of banks, along with Big Tech, a stablecoin with 1 trillion tokens issued will not be outlandish. A company like Meta could certainly achieve this.

We also could see some banks replicate what Blackrock did with the BUIDL fund. This will be more at the institution level but it is effectively creating a tokenized money market fund. Investments are used to purchase T-bills, the same as with most asset backed stablecoins. This time, however, a portion of the interest is paid to the investors.

BUIDL now has a market cap of $2.5 billion.

The banks are not going to pass on this opportunity. It looks like the regulators and legislation will let them in.

Posted Using INLEO