Goldman Sachs says we’re on the verge of a stablecoin gold rush worth trillions

Economy·Goldman Sachs says we’re on the verge of a stablecoin gold rush worth trillionsBy Jim EdwardsBy Jim EdwardsExecutive Editor, Global NewsJim EdwardsExecutive Editor, Global NewsJim Edwards is the executive editor for global news at Fortune

He was previously the editor-in-chief of Insider's news division and the founding editor of Insider UK

His investigative journalism has changed the law in two U.S. federal districts and two states

Supreme Court cited his work on the death penalty in the concurrence to Baze v

Rees, the ruling on whether lethal injection is cruel or unusual

He also won the Neal award for an investigation of bribes and kickbacks on Madison Avenue.SEE FULL BIO Scott Bessent, U.S

Treasury Secretary, at a hearing in the House.Pete Kiehart—Bloomberg/Getty ImagesGoldman Sachs and U.S

Treasury Secretary Scott Bessent expect a stablecoin gold rush, driven by new regulations and massive potential for payment market expansion

Stablecoins, which must be backed by U.S. dollars or Treasuries, could boost demand for government bonds, though some argue this mostly redistributes money, rather than increasing the net demand for debt

Treasury Secretary Scott Bessent believes stablecoins will buoy the market for U.S

Treasuries, and the government will sell more short-term debt to meet that demand, according to the Financial Times. “Bessent has signalled to Wall Street that he expects stablecoins, digital tokens that are backed by high-quality securities such as Treasuries, to become an important source of demand for U.S. government bonds,” the FT reported

The FT’s sources asked for anonymity but there was no need for them to be coy: Bessent said in a press statement back in July that he expected demand for cryptocurrencies—backed 1:1 with U.S. dollar instruments—to support the price of bonds: “This ground nology will buttress the dollar’s as the global reserve currency, expand access to the dollar economy for billions across the globe, and lead to a surge in demand for U.S

Treasuries, which back stablecoins

The GENIUS Act vides the fast-growing stablecoin market with the regulatory clarity it needs to grow into a multitrillion-dollar industry,” he said at the time

The GENIUS Act, announced last month, “aligns State and Federal stablecoin frameworks, ensuring fair and consistent regulation throughout the country” the White House said at the time

So how big a deal will this be? Goldman Sachs thinks we’re at the beginning of a stablecoin gold rush, according to a re paper published today by the bank’s Will Nance and others. “Stablecoins are a $271bn global market, and we believe USDC [the stablecoin issued by Circle] benefits from market gains on and off of partner Binance’s platform, as stablecoin legislation legitimizes the ecosystem, and the crypto ecosystem expands, also potentially catalyzed by legislation

Based on current trends and announced initiatives, we see $77bn of growth in USDC, or a 40% CAGR, from 2024-27E,” they wrote

This opportunity is largely untapped so far, with the majority of stablecoin activity being driven by crypto trading activity and demand for dollar exposure outside of the U.S.” Because stablecoins in the U.S. must be backed 1:1 with dollars or U.S. bonds, each stablecoin issued increases the demand for the bonds that back them

Some people think this will alter the bond market, especially for short-dated bonds with low interest yields

A re paper by the Bank for International Settlements (an international organization that fosters cooperation between central banks), says it will. “A 2-standard deviation inflow into stablecoins lowers 3-month Treasury yields by 2-2.5 basis points within 10 days,” the BIS paper estimated

But the effect is “asymmetric”: “Stablecoin outflows raise yields by two to three times as much as inflows lower them,” the paper said

UBS’s Paul Donovan is more skeptical: “U.S

Treasury Secretary Bessent is reportedly getting excited that stablecoins might increase demand for short-dated U.S

Treasuries, helping finance the unsustainable U.S. fiscal position

However, stablecoins are more redistributing money supply

Someone selling Treasury bills to buy stablecoins, which invest the money in Treasury bills does not change demand for US debt instruments,” he told clients this morning

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