Former BitMEX CEO Arthur Hayes warned that the U.S. Treasury’s rising reliance on debt markets might quickly hit structural limits, with stablecoins rising as a important new liquidity channel.
In a July 3 Substack publish, Hayes stated the U.S. Treasury will want new methods to promote trillions of {dollars} in bonds with out inflicting rates of interest to spike. He thinks stablecoins and Bitcoin (BTC) might play a significant position on this effort.
In accordance with Hayes, Treasury Secretary Scott Bessent faces the issue of discovering consumers for U.S. debt whereas retaining markets calm. Bessent has a near-impossible job of promoting over $5 trillion in bonds this yr to cowl new deficits and refinance maturing debt, all whereas retaining the 10-year yield below 5%.
The Federal Reserve, which used to purchase bonds to maintain charges low, is now attempting to regulate inflation and can’t step in as simply. This leaves the Treasury to search out different methods to assist the bond market. This has pushed Bessent to search for different consumers, particularly giant U.S. banks and ultimately the stablecoin sector.
The answer, in response to Hayes, lies in turning financial institution deposits into stablecoins. He highlights JP Morgan’s JPMD token, which can run on Coinbase’s Base community, as a significant turning level. Hayes says that after banks shift buyer deposits into tokenized {dollars}, they will cut back prices by automating compliance and operations, doubtlessly saving $20 billion a yr, after which recycle these deposits into Treasury payments.
T-bills, which carry minimal rate of interest threat and yield near the Fed Funds price, supply a compelling return for banks. Hayes estimates that tokenized deposits might unlock $6.8 trillion in T-bill demand. He additionally factors to a Republican-led proposal to finish the Fed’s curiosity funds on reserves, which might probably power banks to redeploy as much as $3.3 trillion in idle funds into Treasuries.
Hayes views these developments as a type of stealth quantitative easing. Relatively than the Fed printing cash, liquidity will now come from the non-public banking sector issuing stablecoins and shopping for T-bills, boosting greenback provide and suppressing yields. For crypto traders, Hayes says it will assist threat property like Bitcoin, which are likely to thrive when liquidity rises and actual yields fall.
Although he warns of a quick pullback in liquidity if the Treasury refills its money account too rapidly after a debt ceiling hike, Hayes stays bullish. In his view, stablecoins will not be simply instruments for fee. Relatively, they’re half of a bigger macro technique that ties banking, debt markets, and digital property collectively.
