In 1863, facing the financial strain of the Civil War, President Abraham Lincoln confronted a fractured banking system. State-regulated private banks issued their own notes, leaving the federal government without direct access to the nation’s money supply or the ability to create currency when it was most needed.
The solution? The National Banking Act, which compelled banks to buy Union debt as collateral in exchange for issuing a new national currency. It was a bold financial innovation that not only funded the war but reshaped the US monetary system for generations.
Fast-forward to July 2025—and history rhymes again.
The GENIUS Act: The Next Monetary Revolution
The newly passed GENIUS Act (Global Enhancement of Nationally Issued USD Stablecoins) establishes a comprehensive regulatory framework for digital dollars—better known as stablecoins.
Treasury Secretary Bessent calls them “a tool to fund federal deficits” and “a way to expand access to the dollar economy for billions.” The Pareto Investor put it more bluntly: “A demand-side solution to a sovereign debt problem—cleverly packaged in the language of technological innovation.”
In short, the US government has found a 21st-century version of the National Banking Act—one that channels private-sector demand into government financing while reinforcing the global dominance of the US dollar.
The Mechanics: Digital Demand for Real Debt
Every dollar that flows into a regulated stablecoin creates a dollar of demand for short-term US Treasuries.
That’s a powerful new funding engine. Secretary Bessent projects that by 2030, stablecoin issuers could hold $3.7 trillion in US bills—making them the largest single buyer of Treasuries in the world.
Tether, already the seventh-largest purchaser, stands shoulder to shoulder with sovereign giants like Saudi Arabia and South Korea. Meanwhile, foreign ownership of US debt has dropped from 49% in 2008 to about 30% today, highlighting the need for fresh domestic demand.
By requiring issuers to hold Treasuries as collateral, the GENIUS Act subtly reintroduces financial repression—without calling it that. The result? Lower interest rates and support for the Fed’s emerging “third mandate”: to moderate long-term rates, as introduced by incoming Fed Governor Stephen Miran.
A Stimulus by Design
The implications are unmistakably stimulative.
By creating new “digital dollars” while keeping borrowing costs in check, the government can fund spending without fiscal restraint—at least in the short run.
The effects are already rippling through markets.
- The US dollar has softened.
- Bond yields have stabilized.
- Stocks are at record highs—led by gold, mining companies, commodities, international small caps, European banks, and industrial cyclicals.
In essence, a new monetary regime is shifting global market leadership away from concentrated US tech and toward real assets and value-driven sectors.
The Hidden Risks Beneath the Innovation
But every revolution carries risk.
Stablecoins link the health of the digital money ecosystem directly to the US Treasury market. The government depends on stablecoin demand for funding—and stablecoins depend on Treasury liquidity for redemption. This circular dependency could become a “doom loop.”
If confidence falters, redemptions could overwhelm the system. When Silicon Valley Bank teetered in 2023, Circle faced $2 billion in stablecoin redemptions, pushing its token to 87 cents on the dollar. If the market scales to $3 trillion to $4 trillion, a similar run would demand a bailout many times the size of 2008.
Moreover, because stablecoins don’t pay interest, they could siphon liquidity from money markets into government debt—fueling inefficiency and crowding out private capital. In a slowdown, this dynamic could magnify deflationary pressures and compound the real US debt burden.
And there’s a philosophical irony: the crypto movement that sought decentralization now risks becoming an arm of state finance.
The Global Countermove
America’s digital-dollar push has not gone unnoticed.
Europe and China are fast-tracking their own euro- and yuan-based stablecoins to protect transactional market share and monetary sovereignty.
The result? A global race among heavily indebted nations to create new forms of currency—each backed by obligations that stretch their fiscal limits. The surge in gold prices this year may be signaling investor unease with this new financial arms race.
Investment Implications: Positioning for the Shift
Stablecoins are fueling an era of expansionary policy reminiscent of post-war stimulus. Investors who recognize this early can position for the rotation.
- Favor real assets, value stocks, and non-US markets poised to benefit from inflationary growth.
- Reduce exposure to overextended US tech.
- Keep defensive strategies on the radar as valuations stretch.
The GENIUS Act may mark the dawn of a new era—one where digital dollars fund sovereign ambition, global finance fractures into competing blocs, and market leadership shifts from technology to tangibility.
Just as Lincoln’s National Banking Act reshaped the monetary landscape of the 19th century, stablecoins may redefine it for the 21st. The question is no longer if this transition will happen, but who will be positioned to benefit when it does?
Our top 10 buy recommendations this month highlight a number of timely funds.
- PIMCO Long-Term Real Return
- Invesco Equal Weight 0-30 Year Treasury ETF
- SPDR Series Trust: S&P Metals and Mining ETF
- Fidelity Select Materials Portfolio
- SPDR SSGA US Large Cap Low Vol ETF
- Fidelity Select Healthcare Portfolio
- Brown Capital Management Small Company
- MFS New Discovery Value
- T. Rowe Price Overseas Stock
- Thornburg Developing World
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