- Schiff said stablecoins redirect funds from traditional markets, potentially weakening support for long-term Treasury securities.
- He warned that limited stablecoin issuer activity in short-term Treasuries could increase mortgage and business loan rates.
- Rising institutional use of stablecoins may limit available capital for private lending and economic investment, Schiff noted.
Economist Peter Schiff has expressed concerns that the growing use of stablecoins may undermine demand for long-term U.S. Treasury bonds and strain financial markets. In a recent post on X, Schiff said that shifting capital into stablecoins could divert liquidity away from traditional money markets without increasing overall Treasury demand.
Schiff explained that when investors move funds into stablecoins, the cash used to back these coins is redirected rather than added to the financial system. He emphasized that the Treasury securities purchased by stablecoin issuers would have likely been bought by money market funds if left in traditional accounts. This, according to Schiff, limits any net gain in Treasury demand.
Interest Earnings Lost to Issuers, Not Investors
The economist pointed out that while stablecoins are typically backed by short-term Treasury instruments, the interest earned on those holdings goes to the issuing firms instead of the end users. Schiff noted this setup results in investors forfeiting income they would otherwise receive if they had invested directly in Treasury-backed funds.
Schiff also cautioned that stablecoin issuers mainly invest in short-term Treasuries, leaving long-term bonds with potentially lower demand. He linked this trend to possible increases in long-term yields, which directly influence mortgage and corporate loan rates. As a result, borrowing costs could rise across sectors.
Stablecoins May Reduce Capital for Private Lending
In addition to the information attributed to the bond market, Schiff noted that the increasingly popular stablecoins may also leave less capital available to be lent to private borrowers. He cautioned that money that went into stablecoins could not be used to lend to businesses and households in the conventional banking system.
The discussion about stablecoins is ongoing with increasing institutional adoption. As banks and other asset managers see stablecoins as revolutionary, Schiff does not see their overall effect as favorable. His remarks coincide with a period when there is greater regulatory scrutiny of the industry, particularly after the authorship of the GENIUS Act by U.S President Trump.
