A recent report from Citi analysts argues that stablecoins are not only strengthening the dominance of the US dollar, but also challenging the long-held belief that Bitcoin could one day end the US dollar’s supremacy.
“Initially, cryptocurrencies like Bitcoin were conceived as rivals to central bank-issued currencies,” Citi wrote in its report. “Indeed, some believed, and continue to believe, that Bitcoin could end the hegemony of the US dollar. However, stablecoins, which account for more than four-fifths of cryptocurrency trading volume, challenge this narrative.”
The report highlights that most stablecoins are pegged to the US dollar, with issuers holding reserves in US dollars and US Treasury bonds. Citi argues that increased regulation and legitimacy around stablecoins could further solidify the dollar’s global dominance.
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“Greater regulatory clarity could potentially further increase the appeal of stablecoins,” Citi analysts wrote. “If so, stablecoin issuers’ demand for U.S. Treasury bonds could increase from around 1% of purchases today. Rather than displacing the dollar, this form of cryptocurrency could make the dollar more accessible to the world and solidify the U.S. currency’s long-standing global dominance.”
Citi’s report also included data showing the growing importance of stablecoins. According to the findings, stablecoin activity is set to reach record levels in the first quarter of 2024 with a transaction value of $5.5 trillion, surpassing Visa’s $3.9 trillion in volume during the same period.
*This is not investment advice.
