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Bond-Market Pros Are Unimpressed With Baby Whales From Crypto

(Bloomberg) -- They are turning into the strangest of bedfellows in the financial world: The famously safe securities issued by the US Treasury and the notoriously not-so-safe world of cryptocurrencies.
Issuers of crypto stablecoins meant to track the dollar one-for-one have become noticeable players in the Treasury market as they seek the safest and most-liquid assets to back the value of their tokens.

For crypto promoters, it’s a development worth touting as the industry seeks friendlier relations with the US government. Tether Holdings Ltd., issuer of the largest stablecoin, has said it is able to “help support US and global financial stability” as issuance of US debt increases and foreign purchases decrease. The sector could even “stave off a U.S. debt crisis,” according to Paul Ryan, the former speaker of the House of Representatives who serves as an adviser for crypto firm Paradigm, in a June op-ed in the Wall Street Journal.

Yet like with many other topics involving crypto, there is an element of truth – and a lot of questionable hype. At least for now.

“Yes, of course it’s hype,” said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics who formerly worked at the Federal Reserve. For example, the roughly $81 billion in Treasury bills directly owned by Tether “is not trivial,” he said. “But it’s just not big by the standards of trillions of dollars in the Treasury market. I don’t see it as a big deal.”

At the moment, stablecoins are far from major whales in US debt markets, accounting for only about 1% of all Treasury bill purchases. The $6.19 trillion money-market mutual fund industry remains the largest buyer of bills. At the end of June, those funds held about $2.4 trillion of government debt, according to Crane Data. And demand from them is likely to grow as new regulatory requirements that take effect in October impose mandatory liquidity fees on some funds during times of financial stress.

There are also corporate whales in traditional finance that dwarf the Tethers of the world: Warren Buffett’s Berkshire Hathaway Inc. increased its holdings of T-bills to $234 billion in the second quarter, almost triple Tether’s holdings and accounting for about 4% of T-bill purchases. The entire market cap for stablecoins is currently about $167 billion, of which Tether accounts for about $117 billion, according to data tracker CoinGecko.