Trump's crypto push has a hidden agenda: driving down US Treasury yields

Analysts say Donald Trump's aggressive push to promote cryptocurrency is driven by a calculated effort to bring down US Treasury yields. The strategy centers on expanding the stablecoin market to create a major new buyer of short-term US government debt — and using that demand as a foundation to pull down long-term yields and reduce the government's interest burden.

According to the Wall Street Journal on Monday (local time), the Trump administration's crypto deregulation drive and the Treasury Department's plan to expand long-term bond buybacks share a common goal: boosting demand for government debt and lowering borrowing costs.

The Treasury is pursuing a plan to increase short-term bond issuance and use the proceeds to buy back long-term debt — a move designed to stabilize long-term yields, which have surged recently.

Treasury Secretary Scott Bessent called the approach a "Treasury Twist" in a CNBC interview that day, drawing a parallel to the Federal Reserve's past "Operation Twist," in which the Fed bought long-term bonds while deploying short-term securities to push down long-term interest rates. The new plan applies the same logic at the Treasury level.

The catch is that sharply increasing short-term bond issuance requires a steady base of buyers. That is where stablecoins come in.

Stablecoins are virtual assets pegged to fiat currencies such as the dollar, designed to minimize price volatility. The Trump administration believes that if the stablecoin market — currently worth around $300 billion — grows to several trillion dollars, it could become a major new source of demand for short-term US Treasuries.

Bessent said last June that the stablecoin market could grow to $3.7 trillion by the end of 2030, adding that "activating the stablecoin ecosystem will drive demand for the US Treasuries that underpin it."

"New demand helps lower the government's borrowing costs and rein in the national debt," he said at the time. With US national debt having recently surpassed $40 trillion, the administration is looking to stablecoins as a new source of Treasury demand that could ease the fiscal burden.

The key link in this plan is the GENIUS Act, enacted last year.

Under the GENIUS Act, any issuer of a dollar-pegged stablecoin in the United States must hold safe assets — including cash or US Treasuries with maturities of 93 days or less — as reserves. The structure means that as stablecoin issuance grows, so does demand for short-term government debt.

The CLARITY Act, which Trump has been pushing hard to pass through Congress — going so far as to invite Coinbase CEO Brian Armstrong to the White House — is similarly focused on bringing virtual assets into the mainstream financial system.

Markets are paying close attention to the possibility that a shift of funds from banks into stablecoins could significantly boost Treasury demand.

According to the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, banks hold an average of about 8 cents in short-term Treasuries for every dollar of assets, while stablecoins invest roughly 80 cents per dollar in government bonds. That means the same pool of money, once moved from bank deposits into stablecoins, could channel far more capital into short-term Treasuries.

A research unit at Citigroup projected that if the stablecoin market reaches $4 trillion by 2030, stablecoins could absorb roughly a quarter of the outstanding US Treasury supply.

The Treasury itself has taken note. An advisory committee of private bankers and investors said last year that "growing stablecoin issuance could generate new demand for short-term Treasuries."

Ultimately, the Trump administration's vision follows a chain: stablecoin expansion leads to greater short-term Treasury demand, which expands the capacity to issue short-term debt, which funds long-term bond buybacks, which stabilizes long-term yields. Crypto policy and debt policy, the analysis holds, are not separate tracks but parts of a single strategy to lower the US government's borrowing costs.

Crypto markets have already been moving sharply on policy expectations. According to Coinbase, Bitcoin climbed as high as $79,987 during trading that day, approaching the $80,000 mark — a surge of more than 20 percent from a week earlier. Shares of Circle Internet Group, the issuer of the stablecoin USDC, and Coinbase also rose more than 20 percent over the same period.

Still, caution is warranted about whether stablecoins can resolve the US Treasury demand problem anytime soon. According to virtual asset data firm DeFiLlama, stablecoin market capitalization has stagnated recently, showing little change from last October.

How reliably the Treasury demand generated by stablecoins can be sustained is also an open question. The Brookings Institution said the Treasury would first need to understand the volatility of stablecoin-driven bond demand before it could design a stable maturity structure for its debt.

The Wall Street Journal said the stablecoin market may need far longer than the remainder of Trump's term to grow large enough to meaningfully reduce the US government's financing costs.