To partially solve their debt problem, the US government may seek to drive down interest payments. Appointing a President Trump friendly Fed Chairman that puts less emphasis on inflation and unemployment could take rates down. Another way would be to mess with stable coin issuers by cutting the interest rate they receive on the treasury bills backing the coins. If a US dollar stable issuer earns 3.6% now on treasury bills, the government could say they are going to only earn 1.8%. When the stablecoin provider revolts, the government could say "something is better than nothing".
Two questions stem from this: 1) is this a bad thing and 2) what should stablecoin investors do or prepare for?
While such a move by the US government may not cause serious long-term harm to a stablecoin provider, it will still be a sentiment hit. The crypto industry respects limited government involvement, thus will be rightfully upset. But it will not stop investors from using US dollar stablecoins, and it probably will not stop competition for USDC and USDT from entering the market. The US government lowers its interest payment, and the crypto universe doesn't lose anything. The only ones to lose something are the stablecoin issuers. But they make enough money as it is, the government might say.
So, to the first question. Cutting the interest payment to stablecoin issuers is not so bad for crypto overall.
But it would be bad for sentiment. It would be one more strike against the overall trust in the crypto market. Government meddling in a market, changing the rules, doesn't create trust.
Even if there is no damage to sentiment or the market long-term, there will probably be some fall-out near-term. There could be selling pressure in the US dollar, both fiat and stable.
Such an event does speak for diversification away from US dollar stable. If the US government can do this, they can do other harmful things. To hedge against any desperate US moves, it makes sense to think of stablecoin exposure as a "portfolio" of stable bonds and coins. Policy developments are a risk. To be too much in one coin, like dollar stable is too much risk.
Etherfuse can help an investor diversify.
This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.
