Peter Schiff has challenged the widely held belief that stablecoins boost U.S. Treasury demand. He warned that they simply divert existing liquidity while risking higher long-term yields.
Stablecoins Crowd Out Lending and Raise Mortgage Rates, Says Schiff
In a recent post on X, the economist and gold advocate explained that the shift into stablecoins may crowd out traditional lending and raise mortgage rates. Hence, they pose broader threats to financial markets.
According to him, when investors move funds from traditional money market accounts into stablecoins, the underlying cash is redirected and not added to the Treasury ecosystem.
Schiff clarified that the purchase of Treasury securities by stablecoin issuers would have already been bought by money market funds. He noted that the key difference is that stablecoin buyers effectively forfeit the interest earned on those Treasuries to the issuing firms, rather than receiving it directly.
In a follow-up post on X, Schiff warned that stablecoin issuers are restricted to buying only short-term Treasury instruments. As a result, demand for long-term bonds could fall. According to him, this demand is critical in determining mortgage rates.
He further explained that the drop in demand pushes long-term yields higher, potentially increasing borrowing costs for homeowners and businesses. He also noted that capital flowing into stablecoins could have broader economic consequences.
“Money that goes into stablecoins to buy short-term Treasuries can’t be loaned out to private borrowers,” he said. This indicates a risk of reduced capital availability for productive investment.
Schiff’s views contrasts that of BlackRock. The world’s largest asset manager recently stated that stablecoins are one of the mega forces that will shape future returns in the financial markets.
Schiff’s Skepticism About the Optimism Surrounding These Fiat-Pegged coins
The comments by Schiff coincides with a boom in the use of stablecoins in the world. The increasing use is especially notable among institutions and other fintech platforms trying to obtain efficient dollar exposure.
Many industry players also cite liquidity and transparency as other advantages of stablecoins. However, opponents, such as Schiff, indicate that they have the potential to disrupt the stability of the traditional financial markets.
Regulators and policymakers continue examine the expanding role of stablecoins in the financial system. This has become more important after the US president Donald Trump signed the GENIUS Act as the first major crypto legislation for the country.
Paul
Paul Adedoyin is a crypto journalist with 4+ years experience who provides timely news, in-depth research, and insightful content to inform and empower his audience. His works have been featured on sites such as CryptoMode, CryptoNewsFlash among others.
He holds a degree in Geophysics from OAU, Nigeria. When he’s not writing, he loves watching soccer and reading educative journals.
He can be reached via [email protected]
Investment disclaimer: The content reflects the author’s personal views and current market conditions. Please conduct your own research before investing in cryptocurrencies, as neither the author nor the publication is responsible for any financial losses.
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