Citi Wealth: If the U.S. government promotes the legalization of stablecoins, it may strengthen the dominance of the U.S. dollar

According to a report from The Block, Citi Wealth strategists believe that the adoption and growth of Stablecoins not only could consolidate the dominance of the US Dollar, but also challenge the notion that Bit could one day end the hegemony of the US Dollar. In a new report, Citi strategists wrote: "Initially, cryptocurrencies like Bit were seen as competitors to central bank-issued currencies. Indeed, some have believed - and still believe - that Bit could end the dominance of the US Dollar, however, Stablecoins (accounting for over four-fifths of crypto trading volume) are challenging this narrative." Citi pointed out that the vast majority of Stablecoins are pegged to the US Dollar, with Stablecoin issuers holding US Dollar cash and US Treasuries as reserves. They also suggested that if the US government further legitimizes Stablecoins, it could strengthen the dominance of the US Dollar. Citi's report stated: "Clearer regulation could also further increase the appeal (of Stablecoins). If so, the demand for US Treasury bonds from Stablecoin issuers could grow from around 1% of purchases currently. As a result, these crypto assets may not replace the US Dollar, but could make the US Dollar more accessible globally and reinforce the currency's long-standing global dominance." Citi also provided data to illustrate the widespread use of Stablecoins: "(Transaction) activity has reached an all-time high, reaching $5.5 trillion in value in the first quarter of 2024 alone. In comparison, Visa's transaction volume is around $3.9 trillion. To address this challenge, Visa, PayPal and other traditional providers are adjusting by offering their own Stablecoins or settling transactions in other companies' coins." As demand for Stablecoins increases and adoption expands, the total market capitalization of Stablecoins surpassed $200 billion for the first time this week. After former US President Donald Trump, who is supportive of cryptocurrencies, won the presidential election last month, the supply of Stablecoins has grown significantly, increasing by nearly $30 billion since November 6. Data from defillama shows that the largest Stablecoin by market capitalization is Tether's USDT, with a supply of around $140 billion, growing about 12% in the past month. The second largest Stablecoin is Circle's USDC, which has also grown about 12% in the past month to around $41.6 billion. The market capitalization of PYUSD, issued by payment company PayPal in August last year, ranks eighth at $541 million.

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