The Fed Just Found Its Trillion-Dollar Treasury Buyer (Russell Yellow...)Let's keep it simple on hump day...
The crypto bros thought they were building an alternative financial system. Instead, they built the world's most efficient US debt distribution network. And they did it for free. Good morning: Yesterday, Federal Reserve Governor Michelle Bowman told an audience at the Wyoming Blockchain Symposium about the Fed's new strategy: Let's turn all those crypto bros into America's debt financiers. She called stablecoins a "fixture in the financial system…" Then she said the Fed was dropping its anti-crypto stance. Game on, America. The GENIUS Act, signed July 18, requires stablecoins to be backed one-to-one with US Treasury bills. Reuters reports that 80% of stablecoin reserves are already in T-bills or repos. That's $200 billion today. Apollo Global Management says this could ring to hundreds of billions or even over $1 trillion in additional demand. So, every time someone has to purchase USDT to trade shitty cryptocurrency coins, they're funding the US government. What a world… Morgan Stanley's Marty Tobias notes this demand primarily supports short-end Treasuries. This helps the Treasury manage future deficits. It's the perfect captive buyer base. The crypto universe thinks they're revolutionaries. But now, they're Treasury subscribers, tied to the very thing they were trying to escape in the first place: Fiat currency... BIS research shows that every $3.5 billion flowing into stablecoins drops 3-month T-bill yields by 2.5 basis points. Tether alone has already lowered yields by 24 basis points. That's $15 billion in annual interest savings for Uncle Sam. We weaponized crypto into a debt management tool. Fed CapitulationBowman said the Fed was killing its "novel activities" program that treated crypto like junk.... They’re just removing "reputational risk" from bank examinations. Banks can finally admit they love Bitcoin without regulatory punishment. Remember, Treasury Secretary Scott Bessent is actively courting Tether and Circle. Why fight crypto when you can farm it? China and Japan are reducing Treasury purchases. We can’t push this onto the US public. And we can’t rely on leveraged hedge funds to carry that basis trade forever, because they tend to blow the world up every year… Stablecoins MUST buy Treasuries to exist. It's not optional. It's their collateral. That said, the Kansas City Fed warned this could displace traditional bank deposits. Well.. So what? The US is $37 trillion in debt… This is incredible financial engineering… And it’s a massive reversal of modern finance… The Fed spent a decade fighting crypto. Now they're embracing it because every stablecoin is a dollar hostage. Every USDC, USDT, and any other stablecoin that launches tomorrow must buy Treasuries to exist. No exceptions. Buy our debt or die. The crypto bros thought they were building an alternative financial system. Instead, they built the world's most efficient US debt distribution network. And they did it for free. Congrats, everyone… Let’s dig into the morning report… Trader’s FocusFutures are a little soft this morning after yesterday’s tech selloff carried into Japan. The Nikkei dropped about 1.1%. If you’ve ever overlaid the Nikkei on the S&P, you know they’re the same chart with a half-day lag, so it’s not surprising. We’re just seeing the same move ripple through... Continue reading this post for free in the Substack app
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