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Reuters
11 hours ago
- Business
- Reuters
Breakingviews - Uncle Sam's stablecoin passion has shaky rationale
LONDON, June 19 (Reuters Breakingviews) - Uncle Sam is going all-in on stablecoins. President Donald Trump backed, opens new tab the privately issued cryptocurrencies whose value is pegged to the U.S. dollar within days of his inauguration in January. Now Congress is poised to legislate, after the Senate this week approved the Guiding and Establishing National Innovation for U.S. Stablecoins – or GENIUS - Act. The newly supportive regulatory environment has drawn a flood of interest from potential issuers, from major banks, opens new tab to retailers, opens new tab such as Walmart (WMT.N), opens new tab and (AMZN.O), opens new tab, according to media reports. Meanwhile stablecoin specialist Circle Internet, opens new tab(CRCL.N), opens new tab, which listed on the New York Stock Exchange this month, has a digital dollar surrogate, USDC, which already has coins worth over $60 billion in circulation, opens new tab. Commercial interest is nothing new. Tech-savvy American corporates have long recognised stablecoins as the one species of digital money with a compelling mainstream use. The first generation of cryptocurrencies such as bitcoin offered not just a way of digitally storing and transferring value, but the ability to denominate it in their own standard units. That model caught on with speculative traders but never made much headway in the world of digital payments. Stablecoins, by contrast, combine the novelty of global, real-time availability and programmability with the familiarity of national currency units. That makes them uninteresting as speculative bets – but well suited as methods for payment. A simple comparison shows how the two models serve different purposes. Bitcoin – the original and by far the largest own-standard cryptocurrency – has tokens in circulation worth $2.1 trillion. That's nearly 10 times the value of the two biggest stablecoins, USDT and USDC, combined. Yet when it comes to transactions, the leaderboard is reversed. Less than 3% of those bitcoins change hands in a 24-hour period, compared to nearly 40% of the two stablecoins. The payments business is a big target for disruption. Visa (V.N), opens new tab and Mastercard (MA.N), opens new tab – the two largest processors of fiat currency payments – reported combined revenue of $74 billion last year and enjoy net profit margins of around 50%. That's quite a market at which to take aim. Moreover, stablecoin issuers collect interest on the collateral backing their digital coins as well as harvesting transaction processing fees. That's how Circle made a cool $1.7 billion in revenue last year. It's not hard to see why potential stablecoin issuers have been lining up for years. Nevertheless early projects flopped, notably Facebook owner Meta Platforms' (META.O), opens new tab ill-fated 2017 Libra stablecoin, opens new tab. That's because regulators and central bankers have not been nearly so keen. Three potential gremlins have been uppermost in their minds. The first is what would happen if stablecoins are not backed by sufficient high-quality, liquid collateral to make them redeemable at par on demand. A plague of pseudo-U.S. dollars would then circulate at varying discounts to the real greenback. That would undermine the so-called 'singleness of money, opens new tab' and destroy the co-ordinating role of the U.S. dollar as a unit of account. The regulators' second bugbear is the black economy. They fret that because stablecoins are effectively 'bearer securities', like physical banknotes, they are subject to know-your-customer and anti-money laundering rules only when their users seek to convert them into traditional bank deposits. In the meantime, they can be used to make payments anonymously just like physical cash. Finally, there is the risk that stablecoins erode the effectiveness of monetary policy. Physical greenbacks may be hard to track, but they are still issued by the U.S. Federal Reserve. A stablecoin issued by Amazon or Walmart might settle a macroeconomically significant volume of transactions between its customers and suppliers without ever formally touching the dollar. That could scramble the Fed's attempts to manage inflation by constraining liquidity. Yet none of these objections are new. Prudential risks are already a concern for money market funds and traditional banks. The anonymity of transactions is a feature of physical banknotes. The dilution of monetary policy is a familiar gripe of central bankers in emerging markets, where foreign currencies such as the dollar or euro often circulate alongside the national unit. What spooks regulators in the developed world is less the novelty of the risks than the frightening scale, scope, and speed which digitisation allows. That implies work-arounds can probably be found, especially if a unified clearing and settlement protocol connecting stablecoins to the traditional financial system, such as the ubyx, opens new tab concept announced this week, are adopted. Until this year, the caution of the regulators trumped the commercial interests of potential stablecoin issuers. What has helped to unblock the GENIUS Act is that the U.S. government believes it has spotted a fiscal benefit. Treasury Secretary Scott Bessent set out, opens new tab his reasoning immediately after the Senate approved the act. 'A thriving stablecoin ecosystem will drive demand from the private sector for U.S. Treasuries, which back stablecoins,' he wrote: 'This newfound demand could lower government borrowing costs and help rein in the national debt.' What's more, he argued, stablecoins could 'onramp millions of new users – across the globe – to the dollar-based digital asset economy', effectively opening up a new frontier of overseas funding for the U.S. budget deficit. Bessent cited projections that the stablecoin market could top $3.7 trillion by 2030. That's certainly not small change. It would be more than sufficient to soak up the $3 trillion that nonpartisan experts reckon, opens new tab Trump's One Big Beautiful Bill Act will add to the national debt over the next 10 years. Unfortunately, things are not so simple. The Treasury already effectively enjoys free foreign financing via overseas demand for U.S. dollar banknotes. The Fed estimates, opens new tab that over $1 trillion of them currently circulate abroad. If dollar-backed stablecoins simply replace demand for physical notes, there will be no net fiscal benefit. Another niggle is that while purchases of stablecoins may help finance the national debt, the tokens could facilitate more payments that fly under the radar of the Internal Revenue Service (IRS). In 2022, the IRS estimated, opens new tab that nearly 12% of U.S. taxes go missing due to underreporting, implying a shortfall of around $600 billion in the most recent fiscal year. A surge in stablecoin usage could easily make that worse. Given the compelling commercial case and the likelihood that regulatory risks can be managed, it is ironic that the potential fiscal dividend that has finally convinced the U.S. government to bank on stablecoins is the shakiest rationale for embracing them. Follow @felixmwmartin, opens new tab on X
Gizmodo
4 days ago
- Business
- Gizmodo
Amazon and Walmart May Issue Their Own Company-Crypto
The Genius Act would likely need to pass first. Retailers like Amazon and Walmart pay fees to credit card companies every time a customer uses their Visa or Mastercard. And it's no secret that retailers are not happy with that chunk of change that gets siphoned off. But thanks to the emergence of digital money, these retailers are reportedly itching to get away from the big banks. In fact, they may even issue their own stablecoins, according to a new report from the Wall Street Journal. Amazon's efforts to develop a stablecoin are still in the 'early stages,' according to the Journal, and there are a lot of questions to sort out. There have reportedly been discussions to use outside stablecoins to settle transactions, but there's also the possibility the online giant could develop its own. The prospect of developing your own stablecoin has two sides. For starters: It's pretty easy. Anyone can make their own fake digital money these days. The flip side is that you'd have to maintain substantial financial reserves to indeed put the 'stable' in that stablecoin name. Stablecoins are typically pegged to the dollar, and theoretically, whoever issues the stablecoin is holding a dollar or a dollar's equivalent for every stablecoin they issue. But you can see how that gets dicey quickly. If the stablecoin 'depegs,' meaning one of your coins is no longer worth $1 in U.S. currency, people start selling them for less than they're worth, and the entire house of cards crumbles. And you can see where that leads. You're soon out of business. That, of course, is why regulators would be the other hurdle to any plans for a big company like Amazon to issue its own stablecoin. The Journal notes that the likelihood of retailers like Amazon starting their own crypto would likely hinge on whether the so-called Genius Act passes Congress, which would set up a regulatory framework for stablecoins. Facebook toyed with the idea of issuing its own cryptocurrency back in 2019. CEO Mark Zuckerberg's team dubbed it Libra, but people took to calling the fake money Zuckbucks. Facebook even founded an entirely new entity called Calibra to oversee the project. But after pushback from legislators, things started to get rough for the project. The U.S. House Committee on Financial Services and the Senate Banking Committee held hearings, the name Libra became Diem, and Facebook's project got beat up by critics as a scam to let the social media company print money. It didn't work out, and Facebook abandoned the project. But nobody knows what would happen if a company like Amazon or Walmart started its own stablecoin today. It's an entirely new regulatory environment, to say the least. President Trump has appointed David Sacks as the first 'Crypto Czar,' and Trump himself has a cryptocurrency which has reportedly added billions of dollars to his family's net worth. If there was ever a time for an ambitious big retailer to try it out, this would really be it. Neither Amazon nor Walmart responded to questions emailed Friday. Gizmodo will update this post if we hear back.
Yahoo
5 days ago
- Yahoo
I Asked ChatGPT To Explain Bitcoin to Me Like I'm 12 — Here's What It Said
For most of us, bitcoin is more than a little confusing. Does it work like real money? Is it physical or only online? And how do you even use it? Cryptocurrency is still fairly new and still very strange to many. Even adults who are pretty savvy with financial know-how can struggle to understand how it works. So, we decided to put ChatGPT to the test with this prompt: 'Explain bitcoin to me like I'm 12 years old.' Check Out: Read Next: Here's what ChatGPT said when I asked it to explain bitcoin like I'm 12. ChatGPT started strong with something every tween can relate to: video games. 'Imagine you have a video game where you collect special coins, and every time you get one, it's recorded in a notebook that everyone playing the game can see. No one can erase or change the notebook without everyone else agreeing,' the AI explained. Then ChatGPT connected the video game analogy to real life: 'You can't hold it in your hand like a dollar bill, but you can use it on the internet to buy things or trade it with people.' This sums it up perfectly. Bitcoin is digital money that lives on the internet. Learn More: ChatGPT tackled the most confusing parts of bitcoin with kid-friendly explanations: No bank needed: 'Normally, banks keep track of who has how much money. With Bitcoin, there's no bank. Instead, thousands of computers around the world all share a copy of the notebook that tracks who has which coins.' The blockchain: 'This super secure notebook is called a blockchain. Every 10 minutes, it gets a new page (called a block) filled with updates — like who sent Bitcoin to who.' Mining: 'People called miners use powerful computers to solve really hard math problems. When they solve one, they get a new Bitcoin as a reward, kind of like digging up buried treasure.' Scarcity: 'There will only ever be 21 million Bitcoins. That's it. No one can make more, which makes them kind of rare — like limited-edition trading cards.' Bitcoin's scarcity is what gives it its value. To make this point clear, ChatGPT explained by using something kids can really relate to: limited edition trading cards. Just about any middle schooler could follow this point, because trading cards are something they can engage with right away. The AI explained: 'It's kind of like if Pokémon cards could be used to buy snacks, and everyone agreed which ones were real using a magical book.' Putting it this way makes bitcoin ultra-relatable. 'Let's say you're trading Pokémon cards at lunch. You write it down in a big shared notebook that the whole school uses to keep track of trades. That way, no one can say later, 'I didn't agree to that!'' ChatGPT nailed this explanation. These analogies made bitcoin easy to grasp without dumbing it down. Not only that, its explanation even covered important details like blockchain technology, bitcoin mining, and scarcity — all in language a 12-year-old (not to mention adults) could understand. Have you been struggling to understand cryptocurrency yourself? Maybe a kid-friendly explanation from ChatGPT is exactly what you need. Sometimes when it comes to complex financial concepts like bitcoin, the simplest explanations are the most effective. More From GOBankingRates Mark Cuban Warns of 'Red Rural Recession' -- 4 States That Could Get Hit Hard 10 Genius Things Warren Buffett Says To Do With Your Money Are You Rich or Middle Class? 8 Ways To Tell That Go Beyond Your Paycheck This article originally appeared on I Asked ChatGPT To Explain Bitcoin to Me Like I'm 12 — Here's What It Said Sign in to access your portfolio
