Is Crypto Here to Stabilize US Treasuries?

January Update 5

Good Morning & Happy Friday! Stocks rose on Thursday, driven by strong earnings from big tech companies, despite a volatile trading session, however, late in the session, stocks pulled back after President Trump announced plans for 25% tariffs on goods from Canada and Mexico. Despite mixed results, the overall tech sector showed resilience, with many companies beating earnings expectations.

Investor sentiment was also influenced by a weak 2.3% GDP growth report for Q4, missing expectations. On top of this, the Federal Reserve’s decision to hold interest rates steady added to market caution, though many viewed it as a positive sign for economic stability.

Today, we look at the big picture of stablecoins and US Treasuries — and one of their most outspoken critics. Also, be sure to see the latest on chain and the portfolio returns.

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Elizabeth Warren is Missing the Big Picture on Stablecoins and U.S. Treasuries

Senator Elizabeth Warren has been one of Washington’s most vocal critics of cryptocurrencies, and lately, she’s set her sights on stablecoins. During a recent confirmation hearing for Treasury Secretary-Designate Scott Bessent, she raised concerns about Tether (USDT), questioning whether its growing holdings of U.S. Treasuries could pose a risk if investors suddenly lost confidence and withdrew funds. But here’s the irony: stablecoins aren’t a risk to the Treasury market—they are helping to prop it up.

The U.S. government is running massive deficits, and financing those deficits requires a steady stream of buyers willing to purchase Treasury bonds. Traditionally, central banks, institutional investors, and the Federal Reserve have played that role. But the landscape is shifting. Global buyers, particularly foreign governments, have been reducing their Treasury holdings as they look to diversify away from U.S. debt. This isn’t happening in a vacuum. The world’s central banks aren’t exactly thrilled by America’s increasing reliance on punitive tariffs and financial sanctions as tools of foreign policy. Some are actively exploring ways to reduce their dependence on the U.S. dollar, and a decline in Treasury demand is part of that strategy.

This is where stablecoins come in. Tether alone now holds over $102 billion in U.S. Treasuries, making it one of the largest single holders of American debt. Unlike foreign governments, which could dump Treasuries in response to political disputes, stablecoin issuers don’t have geopolitical motivations. They buy Treasuries because they need liquid, dollar-backed reserves, and that demand has helped absorb a growing supply of U.S. debt. In other words, stablecoins have been an unexpected but crucial player in keeping borrowing costs from rising even further.

Warren, however, seems more focused on the hypothetical risks than the very real benefits stablecoins provide. If she gets her way and pushes for policies that stifle stablecoin growth, the U.S. might find itself with fewer willing buyers for its ever-growing debt. That would drive up Treasury yields, making it more expensive for the government to borrow and putting even more pressure on an economy already strained by high interest rates.

Rather than painting stablecoins as a threat, policymakers should recognize the role they’re playing in supporting U.S. financial markets. Yes, regulation is necessary, but it should be thoughtful, ensuring transparency and stability without undercutting the demand that stablecoins are bringing to Treasuries. Warren should be careful what she wishes for—because if stablecoins are pushed out of the picture, the Treasury market may become even more unstable, and that’s a risk no one should be willing to take.

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In Memoriam

On a more personal note, we would like to remember those lost in the tragic plane flight on Wednesday. As a parent of a skater, I had the pleasure of travelling with the Skating Club of Boston’s members of the USFS team multiple times over the past few years and it is indeed a tight knit group and the loss of the six members has hit those in the skating community hard. To the friends and families to all of those lost on this tragic flight, we send out thoughts and support.

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Bitcoin is the Large-Cap Giant of Crypto but the Real Alpha Lies in Token Selection

The cryptocurrency market is constantly evolving, but one thing remains clear in terms of investor flows - Bitcoin continues to dominate. Much like a large-cap stock with strong brand recognition such as Apple, Microsoft, or Tesla, Bitcoin benefits from deep liquidity, institutional adoption, and a growing reputation as digital gold. Even in a market that has seen an explosion of new tokens and narratives, Bitcoin’s grip on the industry remains very strong.

In recent weeks, Bitcoin’s market dominance has surged to nearly 59% of the total crypto capitalization, its highest level in over three years. Past cycles we have seen Bitcoin’s rallies were often followed by an aggressive altcoin season. Although we have not yet seen that shift occur, we believe that tokens which are seeing strong TVL growth and genuine utility will start to play catchup.

A major catalyst for the Bitcoin dominance has been the rise of spot Bitcoin ETFs, which have made Bitcoin far more accessible to traditional investors. As of late January, Bitcoin ETFs collectively managed over $39 billion in assets, an extraordinary leap from just over $1 billion a year ago. Institutional demand continues to flow into these products, reinforcing Bitcoin’s dominance while potentially starving the broader crypto market of speculative capital.