The REAL Reason the US Government Embraces Crypto (It's Not What You Think)

Remember when cryptocurrency was public enemy number one? When financial advisors shuddered at the mere mention of Bitcoin, warning clients of imminent doom and Ponzi schemes? Now, Uncle Sam is giving crypto a bear hug. Jamie Dimon, CEO of JP Morgan, once a staunch crypto critic, is now saying you can buy Bitcoin at Chase. What gives? Why the sudden change of heart?

It's tempting to believe the narrative of innovation, freedom, and decentralized finance. But what if the real reason is far more pragmatic, even…dare we say…self-serving?

I would argue that the US government's embrace of crypto, particularly stablecoins, is primarily driven by the urgent need to prop up the US Treasury market. It's not about embracing the future; it's about securing the present.

In this blog post, we'll delve into the surprising truth behind the US government's evolving crypto policy and explore the critical role stablecoins play in the Treasury market.

The Government's Crypto 180: From Pariah to Partner

Rewind to 2020, the crypto landscape was a Wild West, and financial advisors were the sheriffs, tasked with keeping their clients away from the perceived dangers of crypto. "Stay away it's a Ponzi scheme. You'll lose everything. It's going to zero.

This wasn't just a matter of personal opinion. Financial advisors were, in many cases, legally obligated to steer clients clear of crypto. Why? Because, your financial advisor doesn't work for you. They work for the government first, they work for their company second, and they work for you third. In other words, they're not on your side.

Fast forward to today, and the narrative has completely flipped. Longstanding crypto opponents like Jamie Dimon are singing a different tune. Now major banks like JP Morgan are offering Bitcoin and other crypto services to their clients.

The common explanation? "If you can't beat them, join them." The government, realizing it couldn't kill crypto, decided to adopt and regulate it. While there's undoubtedly some truth to this, it doesn't paint the whole picture.

The Scott Bessant Revelation: The $2 Trillion Secret

The real turning point came with a revealing statement from Secretary Scott Bessant. He declared that the United States should be the "premier destination for digital assets." But the crucial part wasn't the ambition; it was the reason behind it.

Bessant highlighted the potential for a staggering $2 trillion of demand for US government securities from digital assets over the next few years. Let that sink in. Two trillion dollars flowing into US Treasuries, fueled by the crypto market.

This revelation comes at a critical juncture. Demand for US Treasuries has been plummeting, and their performance has been dismal due to rising interest rates and massive government debt. The US government needs buyers, and it needs them desperately.

Stablecoins as Treasury Lifelines: A Dollar by Any Other Name

So, how does crypto translate into demand for US Treasuries? The answer lies in stablecoins.

Stablecoins are cryptocurrencies designed to maintain a stable value, typically pegged to the US dollar. Popular examples include Tether (USDT) and USD Coin (USDC). They achieve this stability by holding reserves of assets equal to the value of the stablecoins in circulation. And what are those assets primarily composed of? You guessed it: US Treasuries.

Think of stablecoins as digital dollar proxies. They allow crypto investors and traders to move in and out of various cryptocurrencies and hold their money in a dollar-equivalent form without having to convert back to traditional fiat currency and move it through brokerage accounts or banks.

Stablecoins like USDC or Tether, are really just dollar instruments that buy treasuries on the back end so that they can maintain their peg.

In essence, stablecoins act as a hidden pipeline, channeling funds from the crypto market directly into the US Treasury market.

The Genius Act: Regulation for a Reason (and It's Not You)

The lack of regulation in the crypto space has led to numerous Ponzi schemes, collapses, and instances where investors thought their money was safe, only to discover it had vanished. This is where the "Genius Act," a proposed stablecoin bill currently under consideration by the Senate, comes into play.

The Genius Act would require stablecoins to hold reserves of liquid, safe assets, primarily Treasury bills, to back their value. This regulation would ensure that stablecoins like Tether and USDC are actually invested in what they claim to be: US Treasuries.

But here's the kicker: This regulation isn't primarily about protecting crypto investors. It's not to protect you or your money. The Genius Act is about bailing out the Treasury market. It's about ensuring that even as people explore alternative forms of money, the US dollar and US Treasuries remain the underlying foundation.

The Bigger Picture: Debt, Inflation, and a Rock and a Hard Place

The US government is facing a looming sovereign debt crisis. When a country's debt reaches around 120% of its GDP, it enters dangerous territory. The only thing that matters is avoiding default.

While governments can always print money to pay back debt, this leads to inflation, which in turn drives interest rates higher, making the debt even more expensive to service. Policymakers are caught between a rock and a hard place.

The government is employing multiple strategies to address this crisis. One is bank deregulation, allowing banks to purchase more US Treasuries without increased risk. The Genius Act is another crucial piece of the puzzle, ensuring that stablecoins continue to funnel funds into the Treasury market.

The irony is palpable. Many people are drawn to crypto because they believe they are escaping the traditional financial system, seeking refuge from the inflationary effects of the dollar. Yet, through stablecoins, they are inadvertently reinforcing the very system they are trying to avoid.

Bitcoin vs. Everything Else: A Different Animal

If you really want to escape government money control you should only keep small amounts of stablecoins or quickly buy other crypto assets with them.

Why? Because only Bitcoin truly operates outside the control of the US government. It's a decentralized, permissionless cryptocurrency that is less susceptible to regulation and manipulation.

Stablecoins, on the other hand, can be adopted, regulated, shut down, or injected with Treasuries at the government's whim. The same holds true for other cryptocurrencies like Ethereum, Ripple, and countless others.

Bitcoin stands apart. It's a different animal, a one-of-a-kind asset that offers a degree of independence from the traditional financial system.

Conclusion: A Crypto Conundrum

The US government's embrace of crypto is not a simple story of embracing innovation. It's a complex maneuver driven by the urgent need to prop up the US Treasury market. Stablecoins play a critical role in this strategy, acting as a conduit for funds from the crypto world into the traditional financial system. And while Bitcoin offers a degree of independence, the broader crypto market is increasingly intertwined with the fate of the US dollar.

Ultimately, the question remains: Is crypto truly a path to financial freedom, or is it just another tool for the government to maintain control?