BIS warns: "Stablecoin bank runs could trigger ripple effects in the US Treasury market"

There has been a warning that the rapid expansion of the stablecoin market could act as a destabilizing factor for the US Treasury market.

According to The Coin Republic, a digital asset (cryptocurrency) news outlet, the Bank for International Settlements (BIS) pointed out in a research report that "as of March this year, the dollar-linked stablecoin issuers held reserves amounting to $200 billion, with a significant share invested in short-term Treasuries." In particular, it is reported that during 2024 alone, stablecoin issuers made a net purchase of $40 billion worth of US Treasuries.

The BIS stated, "An inflow of stablecoin funds of $3.5 billion lowers 3-month Treasury yields by about 22.5bp, but an outflow of the same amount raises yields by 68bp," adding that "outflows have an effect two to three times greater than inflows."

The ‘GENIUS Act’ (GENIUS Act), a stablecoin regulation law passed by the US Congress last month, stipulates that all dollar-based stablecoins must be backed by cash or liquid assets. Accordingly, the demand for US Treasuries is expected to further increase.

On the other hand, the BIS expressed concern that "in the event of large-scale redemptions, stablecoin issuers would have to rapidly sell off their holdings of Treasuries, which could trigger a 'fire-sale' phenomenon across the markets." The report also added that "the sale of short-term Treasuries for cash conversion could put pressure on the US Treasury market, and stabilization may be difficult without Fed intervention."