Crypto Is Good for the Dollar—Here’s Why

Paul Ryan for president!

OK, that is not actually an endorsement or a political statement.

It’s more an expression of euphoria that there’s a politician out there with a halfway decent idea…

Ryan, if you haven’t seen, published an OpEd in the Wall Street Journal recently making a solid case for America to give consideration to incorporating so-called crypto stablecoins into US fiscal strategy.

These stablecoins are nothing more than a digital doppelgänger for fiat currencies such as the dollar, the euro, the pound, and others. They’re not actually built and distributed by sovereign governments. Instead, they’re the product of third-party developers like Boston-based Circle, which built US Dollar Coin.

USDC, as it’s known, tracks the US dollar on a near 1:1 basis. When it deviates, it’s fractions of a penny on either side of a buck, making it, well, “stable.” The entire world of crypto moves into and out of USDC on a regular basis, typically for managing risk (moving out of bicoin, Ethereum, etc. and into the dollar), or for earning a return since USDC deposits at certain websites are earning north of 12% today with miniscule risk.

Ryan, a former Congressman from Wisconsin (go Badgers!), suggested in the WSJ piece that stablecoins could very well prove a savior for America’s embattled finances. In Ryan’s own words:

According to the Treasury Department and DeFi Llama, a cryptocurrency analytics site, dollar-backed stablecoins are becoming an important net purchaser of U.S. government debt. If fiat-backed dollar stablecoin issuers were a country, it would sit just outside the top 10 in countries holding Treasurys.

Ryan, currently serving as a member of the Policy Council for Paradigm, a venture capital firm focused on crypto innovations, is getting at the fact that stablecoins such as USDC and US Dollar Token (USDT or Tether) back their coins with dollars/Treasury paper to maintain a 1:1 ratio so that each stablecoin represents $1 standing behind it.

That all stablecoin issuers as a whole sit just outside the top 10 holders of US debt globally says more than any words I could write about the vastness of crypto adoption globally.

Ryan’s point is one I’ve made in the past: That crypto is actually good for the dollar.

America is desperate for any buyers of Treasury debt the country can find. Central banks around the world, led by China, have been reducing their dollar holdings, and as part of that they’re skipping the auctions that the Treasury Department regularly holds to, well, auction off new tranches of Uncle Sam’s debt.

Lethargic demand for new Treasury debt, and countries scaling back their exposure to the dollar is hugely—HUGELY—troubling for America.

The US must continually roll over its debt just to keep the country functioning.

But a lack of buyers combined with countries reducing their dollar holdings pushes interest rates higher on the debt America must sell. More and more buyers back away, meaning higher and higher rates on US debt, which means higher and higher debt-repayment costs, which means having to sell more and more debt to afford those higher payments.

Enter crypto…

Stablecoins are an unending source of Treasury demand. Actually, they’re a growing source of demand.

In the six years since it was founded, Circle’s USDC has attracted nearly $33 billion. Granted, in the grand scheme of America’s finances, that’s tiny—equivalent roughly to half a percentage point of America’s 2024 budget.

But that misses the point—sort of like complaining you can’t see the trees because that pesky forest is blocking your view.

It’s the growth that matters most, and the fact that crypto is exploding in use-cases all over the world. That drives ever-more people and ever-more money into stablecoins. And as demand for stablecoins grows, so grows demand for the dollar, which can offset some of the declining interest in the dollar seen all over the world among central banks and sovereign-debt investors.

Ryan ultimately is highlighting a much bigger reality: That crypto ownership is exploding, and that blockchain (the tech behind crypto) is the future of the internet and of everything from finance to entertainment to education, gaming, and beyond.

Lots of politicians in America like to beef with crypto.

But the reality is that they’re tilting at windmills.

Bitcoin, Ethereum, Solana, and so many others are now a permanent part of our digital landscape.

Holdouts in government would be wise to consider Ryan’s position.

And consumers and investors who don’t own crypto, would be wise to consider the reality of why Ryan is pushing for crypto to save the dollar.

He sees the same downward spiral I’ve been writing about for many years, and which is now coming to a head. Ryan realizes crypto has a role to play in America’s financial survival.