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A few days ago, a startling detail emerged about the US Treasuries market. Corporate reports from Tether, the world’s biggest stablecoin, show that the El Salvador-based group made $28.2bn net purchases of US government bonds in 2025 — making it the seventh-biggest offshore buyer. That beats new purchases from countries such as China. Indeed, the combined gross Treasuries holdings of Tether and Circle (the second-biggest stablecoin group) now easily exceeds those of investors in countries such as South Korea and Saudi Arabia. Yes, really.
This is startling, given that five short years ago, stablecoins — essentially a digital currency that runs on a blockchain, like bitcoin, but whose value is pegged against a regular currency or asset — were essentially insignificant.
Is this a good thing? US Treasury secretary Scott Bessent thinks so: he has repeatedly argued that stablecoins are a weapon he can use to promote dollar usage around the world, and absorb America’s ever-swelling debt issuance. He also thinks the sector could expand from its current $300bn size to $3tn soon, never mind the current pain in other corners of crypto.
However, many global leaders hate the prospect of more dollar imperialism. And what is notable — and surprising — is that opposition is now emerging inside America too, from its mighty banks. On Tuesday, the White House convened a meeting between bankers and crypto enthusiasts around the seemingly arcane details of new stablecoin rules. Emotions are running so high that Jamie Dimon, head of JPMorgan, reportedly declared in Davos last month that Brian Armstrong, head of Coinbase, the crypto group, is “full of shit”.
Investors should watch this financial street fight for several reasons. One (obvious) point is that this matters for Treasuries. Second, the fight could also impact the future of finance — and financial stability — given that what Tuesday’s meeting was essentially about is whether stablecoins will compete with onshore bank deposits or not. Until now, this seemed a fanciful idea. After all, the stablecoin sector is still dominated by offshore players, such as Tether, and previously many flows were reportedly linked to criminality.
Some regulators fear criminality remains rife. However, last summer the White House backed a bipartisan congressional bill, the Genius Act, to bring the sector onshore, to be part of mainstream finance. This banned issuers, like Tether, from paying interest on stablecoins. But it permitted third parties, like Coinbase exchange, to do so. And that wrinkle leaves banks terrified that they will lose retail deposits to stablecoin products, since the latter pay more interest. Thus they want to stop that by rewriting a new proposed bill, called Clarity.
“Stablecoin growth will reduce bank deposits and lending,” the Bank Policy Institute argues, warning that this flight would curb US credit and “increase the risk of a financial crisis”, akin to 2008.
The crypto sector vehemently disagrees that retail deposits will evaporate or hurt banks (which have a $18tn deposit base). They also note that a swelling chunk of American lending already comes from private credit, not banks, and argue that curbing stablecoin growth will cede an advantage to China, which recently permitted financial groups to pay interest on the digital yuan. “Banks want to ban rewards to maintain their monopoly,” Armstrong angrily declared, sparking Dimon’s attack. The fight will undoubtedly run and run. And, in truth, neither side can settle their case conclusively with the existing data, precisely because the sector is so young, as a thoughtful paper from the Federal Reserve notes.
But in the meantime, there is a third important issue to watch: what this reveals about political cracks around the White House. US President Donald Trump arrived in office pledging to support the crypto world, which was his biggest donor in the 2024 campaign, and his inner circle is deeply invested in crypto, as Democrats note; indeed Howard Lutnick, commerce secretary, is entwined in Tether.
Tech oligarchs backing Trump were duly thrilled. But Wall Street banks are also big political donors and tend to get Republican congressional support for their interests. And community banks have clout, since they are beloved by main street populists — albeit usually ignored or scorned by techies.
The stablecoin saga has now morphed into a fight between competing factions of Trump supporters and donors. As such, it echoes White House splits that have erupted around H-1B visas and the explosive Epstein files. And these factional fights matter as much (if not more) for investors than the usual battles between Democrats and Republicans. Trump’s political court — and his courtiers — are splintering.
Maybe Bessent will broker a peace. Or maybe that Clarity bill will quietly die. But in the meantime the stablecoin saga has become a powerful bellwether, not just for shifts in the tectonic plates of global finance — but US politics and geopolitics too. Think of that when the US Treasury next holds a bond auction — and then weep or celebrate, depending on your viewpoint.
gillian.tett@ft.com
