On June 17, the U.S. Senate successfully passed the Guiding and Establishing National Innovation for U.S. Stablecoins (Genius) Act, which aims to establish a federal framework for regulating stablecoins. The bill will now proceed to the House for consideration, and a final approval by President Donald Trump is anticipated before summer concludes. As expected, the crypto community welcomed this development, leading to a spike in stocks associated with stablecoins. Here’s what you should know.
A Strategic Move for Crypto Regulation?
The Genius Act marks a significant milestone as the first substantial piece of cryptocurrency legislation enacted during the Trump administration, which had pledged to implement major reforms in the crypto domain. Prior initiatives, like the establishment of a Strategic Bitcoin Reserve, were executed solely through executive orders.
This new legislation is crucial because it establishes clear guidelines for stablecoins, a sector that has rapidly expanded within the cryptocurrency market. In 2020, the total value of stablecoins was around $20 billion; today, that figure has skyrocketed to $250 billion. Treasury Secretary Scott Bessent predicts that their market cap could reach as much as $2 trillion in the coming years.
Understanding Stablecoins
In simple terms, stablecoins are digital currencies that maintain a value fixed to another asset, typically at a 1:1 ratio with the U.S. dollar in 90% of instances. However, these coins could also be linked to other currencies, such as the Japanese yen. Stablecoins serve various functions, including facilitating international trade, enabling digital transactions, and engaging in decentralized finance, which is the blockchain counterpart to traditional financial systems. The Treasury Department has suggested that stablecoins might also be utilized to help mitigate the nation’s substantial $37 trillion debt and enhance the dollar’s value.
Investment Opportunities in Stablecoins
The positive aspect is that there are multiple avenues to engage with this expanding investment trend. The most straightforward method is to invest in leading stablecoins. Currently, Tether (USDT) and USDC dominate the market, together accounting for nearly 85% of the total $250 billion stablecoin sector. However, it’s important to note that if you’re not planning on engaging in decentralized finance strategies that generate yield, you’ll be holding an asset that is designed to maintain a constant value of $1, which is why they’re often referred to as digital dollars.
Another option is to invest in prominent stablecoin issuers. A notable example is Circle Internet Group, the creator of the USDC stablecoin. Following its public offering (IPO) on June 5, Circle’s stock has surged remarkably. It stands out as the only publicly traded company solely focused on issuing stablecoins, which explains its popularity among investors. Other publicly traded firms are also entering the stablecoin space; for instance, PayPal launched its own stablecoin in August 2023. Recently, reports surfaced indicating that major companies like Amazon and Walmart are looking into creating their own stablecoins.
Risks and Considerations
The new legislation surrounding stablecoins represents a significant advancement for the cryptocurrency market. As Trump emphasized in a social media post, this law could position the U.S. as the “UNDISPUTED Leader” in the realm of digital assets. The stablecoin sector appears set for substantial growth in the upcoming years, with the U.S. poised to play a critical role. However, it is essential to recognize that stablecoins, while intended to be stable, can exhibit considerable volatility. An example of this occurred during the last crypto bull market when a well-known stablecoin, TerraUSD, lost its dollar peg, resulting in significant financial losses for investors and contributing to the broader crypto downturn of 2022.
Additionally, potential conflicts of interest may undermine investor confidence in stablecoins. Notably, World Liberty Financial, a crypto venture linked to the Trump family, has recently introduced its own stablecoin, raising concerns among some politicians, including senators who opposed the Genius Act. Nevertheless, enthusiasm for stablecoins remains high, as they are anticipated to transform the financial landscape, garnering attention from both Wall Street and Washington. It’s evident that investing early in this emerging trend could yield significant long-term benefits.
John Mackey, former CEO of Whole Foods Market, which is owned by Amazon, serves on The Motley Fool’s board. Dominic Basulto has stakes in Amazon, Circle Internet Group, and USDC. The Motley Fool holds positions in and endorses Amazon, PayPal, and Walmart. Additionally, The Motley Fool recommends long positions on January 2027 $42.50 calls for PayPal and short positions on June 2025 $77.50 calls for PayPal. The Motley Fool maintains a disclosure policy.
