Dear Reader,
Today I want to talk about the “GENIUS Act.”
A lot of readers and friends have asked me what I think of this new stablecoin crypto law.
“The GENIUS Act” - another great marketing name for a bill.
Here’s what’s going on…
The GENIUS Act has some positives and some negatives.
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The most important thing it does is allow stablecoins to be issued as long as those stablecoins are backed by U.S. Treasuries or equivalent liquid instruments.
This allows basically any company to issue a stablecoin.
For example, your local bank could issue a stablecoin as long as it’s backed by the equivalent amount in treasuries.
And it’s considered a stablecoin and not a security.
This is very important. Because there’s been a lot of fighting on both sides of the aisle on whether crypto is a security.
This new law is a great answer to that.
It says, look, stablecoins, backed by U.S. Treasuries, won’t be considered securities.
They don’t have to register per the Investment Company Act of 1940. Which is fine.
They are treated more like currencies.
And companies that don’t back stablecoins with treasuries will be considered speculative securities.
So you finally get some clarity, which I think is right down the middle and good clarity.
Now, one of the things I don’t like about this bill is that basically you can tell it was written by the Magnificent Seven.
Facebook, Google and all these companies can and will issue stablecoins.
Americans don’t want the government to issue stablecoins because then they can track everything.
So instead we give more power to Facebook and everyone else - the Mag 7 that want to issue stablecoins.
So instead of our government tracking us, these companies, quasi-government entities, will track us instead.
So we keep that fig leaf of secrecy on our banking activities if we play around with stablecoins.
One of the big arguments the Trump administration has made to really get this piece of legislation over the finish line has been that it will create demand for U.S. Treasuries at a time when the U.S. government is having trouble financing its budget deficits.
Remember, Trump’s Big Beautiful Bill is going to add at least three, maybe five, maybe even more, trillion in red ink to the U.S. government.
We’re just adding to our debt.
And the Trump administration has gone around and said, hey, look - if we allow this stablecoin legislation through, and force them to be backed by U.S. Treasuries, we’ll create demand for Treasuries.
Issuers, say Facebook, to issue a stablecoin will have to go in and buy U.S. Treasuries to back its stablecoin.
All the big banks - Bank of America, JPMorgan, etc. are obviously going to do this.
Because if you don’t do it, Visa will do it. You’re going to get left behind.
So there will be a lot of demand for treasuries.
Which will help finance Trump’s Big Beautiful Bill.
At first I thought, “that’s an interesting idea.”
But the truth is, that money will have to come from somewhere.
The pie is only so big.
If that money is now being pushed into buying U.S. Treasuries to back stablecoins, where is it not being used?
The argument is that banks, which will likely be the biggest issuers of stablecoins, will go from traditional banking activities like lending money to small businesses, commercial real estate, farmers, etc., to instead using a lot of it for buying treasuries to issue stablecoins.
This will certainly have weird effects on the economy.
A lot of folks have also asked me what I think of investing in companies that issue stablecoins.
One recently went public.
Well, historically speaking, when you study the development of an industry group, what you find is that there are big profits in the beginning when you’re the only game in town.
When other companies start to enter the competition, profits get squeezed down.
So you might have stablecoin issuers right now that make outsized, crazy profits.
But just wait till they’re competing with JPMorgan, Visa, MasterCard, Bank of America, Facebook, Google, Walmart, PayPal.
What ultimately happens in competitive strategy is the abnormal profits you see when there are only two or three issuers evaporate as new, bigger animals come in and start bringing down prices to win market share.
Can one of these stablecoin issuers’ stock go up in the short term?
Of course!
But over time we’ll see a lot more competition from far bigger players. From the people who invented the game of getting scale.
So, while people keep asking me if they should be buying stablecoin issuers’ stocks, I wouldn’t be particularly bullish on today’s stablecoin issuers.
I think this is going to get commoditized down to normal.
Everybody’s going to be issuing stablecoins, in my view.
Every bank, Mag 7…
You’ll be able to use them for all kinds of transactions.
And as long as they’re underpinned by U.S. Treasuries they should be fine.
You know, I wasn’t a fan of this stablecoin legislation in the beginning, but now that I see it in its final form, it’s not terrible.
For those of us who care about keeping the U.S. dollar as the world’s reserve currency, this is a small win.
Have a wonderful day.
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