The GENIUS Act passed the House of Representatives and is now heading to the President's desk for signature.

Many are applauding this move. Of course, there are detractors, those who are usually opposed to crypto. However, there is a smaller segment of feel this bill is not a positive for crypto. This is something we will cover in a moment.

No longer is the United States the Wild West regarding stablecoins. A regulatory framework was outlined by the U.S. Congress which will now allow larger corporations to enter.

The major point of the bill is that all legal stablecoins must be backed by government approved assets. In this case we are looking at T-Bills, Repo contracts and MBS. The assets used must by "highly liquid" which pushes the use of shorter term securities.

One result is the likely entry of the major banks. As mentioned in previous articles, we are looking at a number of larger ones who already said they will be involved. Regulatory uncertainty pushes larger capital away.

For stablecoins, this is no longer the case.

But is it all sunshine and rose? We will take a look at this.

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U.S. Stablecoin Bill Passes: What It Means For Crypto

The first forecast laid out is the stablecoin market will explode. Like it or not, the major financial players will get involved. No longer are we looking at just the PayPals of the world.

JPMorgan. Citigroup. Bank of America.

These are some of the biggest names in banking. They also have the most deposits on hand. Entry into the stablecoin world could help to push the market to trillions.

Of course, this goes against the basic ethos of crypto. It was not designed to be another toy for Wall Street. Nevertheless, this is what occurred. The political class could not allow something to operate outside its perceived control. What is ironic is no matter where the boundaries are with this law, the banks are already working on ways to exceed them.

USD Dominance

Many speculate this bill will help to maintain the US dollar dominance. This makes sense since the majority of stablecoins issued are USD.

I find it hard to digest that we are seeing another layer of transactions, one that is more efficient and less expensive than the existing system, and that the USD will not dominate with many of the same players involved.

With stablecoins, the boundaries are not based upon geography. The integrations into a large network of coins, most capable of being easily swapped makes payment systems even more robust.

The existing banking (hence monetary) system is fractured. It was build over a century, with networks being added. Basically it is a hodge podge of systems stitched together. This is one of the main reasons for the inefficiencies.

We could say the same about crypto networks. However, that is rapidly diminishing.

To start, EVMs allow for easy swapping across the different networks. Then we have protocols that make cross-chain swapping simple, especially for those written using different code bases. Ironically, decentralized exchanges could expand the reach of these bank issued stablecoins.

US Treasuries

It is no secret that we see governments dependent upon their ability to sell debt. Since deficit based spending became the norm, the party keeps going as long as the debt is sold.

The problem is we are seeing a crisis in the confidence in government. This started about a decade ago and keep accelerating. The latest coverup by the Trump administration of the Epstein case only adds to that sentiment.

With the passage of this bill, there is a built in buyer for US Treasuries, specifically T-Bill. Here we see stablecoin issuers forced to purchase the debt. It is a cycle that could actually provide benefits.

One of the drawbacks to global trade is the lack of "money" available. Since the Great Financial Crisis, balance sheet constraint was the norm. For this reason, the economy did not have the financing it needed.

We know politicians will keep spending. If there is a need for more money, stablecoin expansion will take place. The banks are now in charge of that, able to tokenize deposits.

If the forecast is right about the stablecoin market moving from $250B to 10x that amount, we are going to see a lot of Treasuries consumed. This is to the benefit of the government since they have a built in buyer for the debt.

The Rise of "Dark" Stablecoins

Another forecast that I have is that, along with the rise in stablecoins in general, we will see similar with "dark" stablecoins.

What are these?

Here we are dealing with non-government approved stablecoins. We are likely looking at algorithmic based or synthetic stablecoins. There is no asset backing, at least in the same manner the government mandates.

These coins will not be allowed on centralized exchanges. Those, too, are regulated. Part of the bill was the ability to have KYC and AML while also being able to implement sanctions.

Naturally, this goes against the value system of many involved in crypto. As infrastructure gets built out, there is greater ability to utilize alternative coins. The regulation basically can only apply to centralized entities. This is a problem for governments.

Eventually, someone will come up with a way to add a privacy layer to a stablecoin. This is likely to be outside the legalized framework. Once this happens, the copycat method tends to follow.

Posted Using INLEO