The article argues that the U.S. government (Treasury Department led by “BBC”) is heavily promoting stablecoins not out of a genuine pursuit of financial freedom, but to solve its massive fiscal deficit and debt problems. The issuance of stablecoins, particularly by large banks, will greatly facilitate banks’ purchases of U.S. Treasuries, thereby providing financing for the government. Additionally, policy adjustments (such as exempting supplementary leverage ratio requirements and stopping payment of interest on reserves) will further release trillions of dollars of capital for Treasury purchases. This policy-driven “innovation” aims to support financial markets through bank purchases of Treasuries, not genuine decentralized finance. The author suggests investors should focus on large bank stocks rather than small stablecoin issuers to profit from this liquidity injection.
The equity investor is Yellen, “Stablecoins, stablecoins, stablecoins; Circle, Circle, Circle.”
Why are they so optimistic? Because Big Bessent’s hawk (BBC) says:
The results are shown in the chart below:
This is a comparison of Circle’s and Coinbase’s market caps. Remember that Circle must hand over 50% of its net interest income to its “big daddy gorilla” Coinbase. So why can Circle be worth nearly 45% of Coinbase? Puzzling stuff…
Another result is this depressing chart (because I hold Bitcoin instead of $CRCL):
This is Circle’s price relative to Bitcoin, with Circle’s IPO date set as baseline 100. Since Circle’s initial public offering, Circle has outperformed Bitcoin by nearly 472%.
Cryptocurrency speculators should ask themselves a question: Why is BBC so bullish on stablecoins? Why did the Genius Act receive bipartisan support? Do American politicians truly care about financial freedom, or is there something else at play? Perhaps politicians do abstractly care about financial freedom, but lofty ideals don’t drive real action. There must be other, more pragmatic reasons for the shift in stablecoin attitudes. Remember 2019, when Facebook tried to integrate its social empire with a stablecoin called Libra, but failed due to opposition from politicians and the Federal Reserve? Let’s review the main problems BBC must solve to understand why BBC is so keen on stablecoins.
The major problem faced by Treasury Secretary Scott “BBC” Bessent is the same one his predecessor Janet “Bad Girl” Yellen faced. Their boss likes to spend money without raising taxes—that is, the U.S. President and politicians in the Senate and House. Thus, the Treasury Secretary must finance the government by borrowing at acceptable interest rates. It soon becomes apparent that the market is unwilling to purchase long-term government bonds of any over-leveraged advanced economy at any reasonable price/yield. This is the “apocalypse romance” hip-swiveling battle that “BBC” and “Bad Girl” Yellen have witnessed over the past few years… booty booty butt:
These are the 30-year government bond yields for the United Kingdom (white), Japan (gold), the United States (green), Germany (magenta), and France (red).
If rising yields weren’t bad enough, the real value of these bonds has also been severely impaired.
Real value = Bond price / Gold price
TLT US is an ETF that tracks government bonds with maturities exceeding 20 years. TLT US is adjusted by gold price and benchmarked to 100. The real value of long-term government bonds has plummeted 71% over the past five years.
If past performance weren’t bad enough, Yellen and current Bessent face some other constraints. The Treasury’s debt issuance team must devise an issuance plan to achieve the following objectives:
Raise approximately 3.1 trillion in debt maturing in 2025.
This chart details the largest expenditures of the U.S. federal government and their changes from the same period last year. Note that every major expenditure is growing at a rate no lower than U.S. nominal GDP.
The first two charts show that the weighted average interest rate on existing government debt is below every point on the Treasury yield curve.
- Credit issued by the financial system is collateralized by nominally risk-free government debt. Therefore, interest must be paid; otherwise, the government would be in nominal default on its debt, which would destroy the entire dirty fiat financial system. As debt maturities increase, interest expense will continue to rise because every point on the Treasury yield curve is above the weighted average interest rate on current debt.
- Since the U.S. is engaged in wars in Ukraine and the Middle East, the defense budget will not shrink.
- As baby boomers enter their golden years with healthcare provided by large pharmaceutical companies, healthcare spending will increase in the early 2030s, paid for by the U.S. government.
Sell bonds in such a way that the benchmark 10-year yield doesn’t exceed 5%.
- When 10-year yields approach 5%, bond market volatility as measured by the MOVE index spikes, and a financial crisis is imminent.
Sell bonds in a way that stimulates the broader financial markets.
This chart from the Congressional Budget Office only updates through 2021, but it clearly shows that since the 2008 global financial crisis, the U.S. stock market has continued to rise, and capital gains tax revenues have surged accordingly.
- The U.S. government requires taxation of annual stock market gains to prevent a truly astronomical fiscal deficit.
- The U.S. government exists to serve wealthy property owners. In bygone eras, when white women were in kitchens, Black men were in fields, and Native Americans were in remote areas, only white male property owners were eligible to vote. In modern America, while universal suffrage is universal, power still derives from wealth controlling publicly traded companies, resulting in government policies that continuously enrich and empower the roughly 10% of households that own over 90% of stock market wealth. One of the most striking examples of how the government favors property owners is that during the 2008 global financial crisis (GFC), the Federal Reserve printed vast amounts of money to save banks and the entire financial system, yet banks were still allowed to foreclose on people’s homes and businesses. This is socialism for the rich and capitalism for the poor! With such a track record, it’s no wonder that New York City mayoral candidate Mamadani is so popular; the poor also want this kind of socialism.
The Treasury Secretary’s job is very easy when the Federal Reserve implements quantitative easing (QE). The Fed prints money and buys bonds, allowing the U.S. government to borrow at low cost and pushing up the stock market. But now, at least on the surface, the Fed must appear to be fighting inflation, and this solemn institution cannot cut rates or implement QE. The Treasury must bear the burden alone.
By September 2022, because the market believed that the largest peace-time federal deficit in U.S. history would persist long-term and the Fed was hawkish, the market decided to execute a margin sell-off of bonds. The 10-year Treasury yield nearly doubled in two months, and the stock market fell nearly 20% from its summer highs. Subsequently, Bad Gurl Yellen put on her red-soled heels and got to work. In a paper written by Hudson Bay Capital, this behavior was called “Aggressive Treasury Issuance” (ATI). Yellen began issuing Treasury bonds at a rate that exceeded those with coupon rates. 1 Over the following two years, $2.5 trillion was injected into financial markets as the Federal Reserve’s reverse repurchase (RRP) facility balance declined. If the goal was to accomplish the three items I listed above, Yellen’s ATI policy has succeeded. That was then, but what about The BBC? In the current environment, how does he accomplish the same three objectives? The RRP is nearly depleted; where else can he find trillions of dollars in interest-free capital that sits quietly on balance sheets, willing to buy Treasuries at high prices despite low yields?
Q3 2022 was tough. The chart below shows the relationship between the Nasdaq-100 (green) and the 10-year Treasury yield (white); when yields spiked, the stock market fell sharply.
The ATI policy effectively depressed the RRP (red) and boosted financial assets like the Nasdaq-100 (green) and Bitcoin (magenta). The 10-year Treasury yield (white) never broke through 5%.
There are two pools of capital owned by large “too-big-to-fail” (TBTF) banks that are willing to purchase trillions of dollars of Treasuries as long as there is sufficient profit potential. They are demand deposits/time deposits and reserves held at the Federal Reserve2. I focus on these eight TBTF banks because their existence and profitability depend on government guarantees of their liabilities, and the banking regulatory system is designed to favor them over non-TBTF banks. Therefore, as long as the government provides some profitable return, they will do as the government demands. BBC asks them to buy his junk bonds, and in return, he will provide them with risk-free returns.
I believe BBC is so excited about anything stablecoin-related because through stablecoin issuance, too-big-to-fail (TBTF) banks will be able to unlock as much as $6.8 trillion in Treasury bill purchasing power. These dormant deposits can then be re-leveraged in the chaotic fiat financial system, pushing markets higher. In the next section, I will detail my model explaining how stablecoin issuance leads to Treasury purchases and enhances the profitability of TBTF banks.
After discussing stablecoins flowing into Treasuries, I will quickly explain how, if the Federal Reserve stops paying interest on reserves, it will release as much as $3.3 trillion for Treasury purchases. This will be another example of policy that is technically not quantitative easing but would have the same positive impact on fixed-supply monetary assets like Bitcoin.
Let us understand BBC’s latest favorite monetary cannon, the stablecoin.
The Stablecoin Flow
My forecast is based on several key assumptions:
Government bonds are eligible for full or partial exemption from Supplementary Leverage Ratio (SLR)
- An exemption means banks don’t need to hold equity capital for the government bond portfolios they hold. Full exemption means banks can purchase government bonds with unlimited leverage.
- The Federal Reserve Board just voted to reduce the capital banks must hold for government bonds; the initial impact will be felt over the next three to six months. This proposal is estimated to release $5.5 trillion in bank balance sheet purchasing power for government bonds, as shown in the chart above. Markets are forward-looking, so this purchasing power will begin to be arbitraged in advance in the Treasury market, thus causing yields to decline, all else being equal.
Banks are profit-driven loss-minimizing institutions
- From 2020 to 2022, the Federal Reserve and Treasury Department urged banks to buy large quantities of Treasuries; because yields were higher, banks purchased large quantities of long-term coupon bonds. By April 2023, due to the fastest Federal Reserve rate hike since the early 1980s, losses on these bonds caused three banks to fail in one week. 3 In the TBTF space, Bank of America had losses on its held-to-maturity bond portfolio exceeding its entire equity capital, and if forced to mark-to-market its bond portfolio, the bank would be insolvent. To quell the crisis, the Federal Reserve and Treasury Department essentially nationalized the entire U.S. banking system through the Bank Term Funding Program (BTFP). However, non-TBTF banks can still suffer losses, and if Treasury losses cause insolvency, management will be replaced and the bank will be sold at a drastically reduced price to Jamie Dimon or another TBTF bank. 4 Thus, bank Chief Investment Officers (CIOs) are reluctant to buy large quantities of long-term Treasuries lest the Federal Reserve again conduct a “rug pull” by raising rates.
- Banks will buy Treasury bills (T-bills), because they are effectively high-yield, zero-duration cash-like instruments.
- Banks will only purchase Treasury bills if they obtain high net interest margin (NIM) and require almost no capital provision for these deposits.
JPMorgan recently announced plans to launch a stablecoin called JPMD. JPMD will run on Base, an Ethereum-based Layer-2 network operated by Coinbase. Therefore, JPMorgan will have two types of deposits. The first I call regular deposits. Regular deposits are still digital in nature, but transferring them within the financial system requires outdated inter-bank systems to communicate and significant human oversight. The transfer time for regular deposits is 9:00 AM to 4:30 PM Monday through Friday. The yield on regular deposits is meager; the Federal Deposit Insurance Corporation (FDIC) estimates the average yield on regular demand deposits at 0.07% and the average yield on one-year time deposits at 1.62%.
The second type of deposit is the stablecoin, JPMD. JPMD operates on a public blockchain, here the blockchain is Base. Customers can access their JPMD at any time (24 hours a day, 365 days a year). By law, JPMD cannot pay interest, but I believe JPMorgan will attract customers to convert regular deposits to JPMD by offering generous cash-back rewards for purchases. It is unclear whether staking rewards are permitted.
Staking rewards: This is the yield customers receive when depositing JPMD with JPMorgan; customers earn returns while the stablecoin is locked.
Customers will move funds from regular deposits to JPMD because JPMD is more useful and the bank offers cash-back purchase incentives. Overall, systemically important banks (TBTF) hold approximately $6.8 trillion in demand and time deposits5. Soon, because stablecoins are a superior product, regular deposits will be converted to JPMD or similar stablecoins issued by other systemically important banks.
Why would JPMorgan go to the trouble of urging customers to convert regular deposits to JPMD? The first reason is to reduce costs. If all regular deposits were converted to JPMD, JPMorgan could effectively eliminate its compliance and operations departments. Let me explain why Jamie Dimon wet himself with fear upon learning how stablecoins actually work.
Compliance is made up of a set of rules established by regulators and enforced by a bunch of humans using early 1990s technology. These rules are structured as: if this happens, then execute that action. 🔴These if/then relationships can be interpreted by a senior compliance officer and encoded into rules that AI agents can follow perfectly. Because JPMD provides complete transparency as all public addresses are real-name verified, an AI agent trained on the relevant compliance regulatory corpus can ensure certain transactions are never approved. The AI can also instantly prepare any reports required by regulators. In turn, regulators can verify data correctness because all data exists on the public blockchain. Overall, systemically important banks (TBTF) spend $20 billion annually on compliance and the operations and technology required to comply with banking regulations6. By moving all regular deposits to stablecoins, this expenditure would be reduced to nearly zero.
The second reason JP Morgan is pushing JPMD is that it allows the bank to leverage stablecoin assets under custody (AUC) to purchase billions of dollars in Treasury bills in a risk-free manner. This is because Treasury bills have almost no interest rate risk but their effective yield is close to the federal funds rate. Remember that under the new SLR rules, systemically important banks have $5.5 trillion in Treasury bill purchasing power. Banks need to find inert cash to purchase these debts, and their stablecoin deposits are the perfect solution.
Some readers might counter that JPMorgan can already buy Treasury bills with its regular deposits. My response is that stablecoins are the future because they create a better user experience and enable systemically important banks (TBTF) to eliminate $20 billion in costs. These cost savings alone are sufficient to incentivize banks to adopt stablecoins; the additional net interest margin is merely the cherry on top.
I know many readers want to put their hard-earned money into Circle (3.91 trillion. Currently, the eight major TBTF banks have a combined market value of approximately $2.1 trillion, meaning stablecoins could drive these bank stocks up an average of 184%. If there is a non-consensus trade investors can make, it is based on this stablecoin thesis, buying an equal-weight portfolio of these TBTF bank stocks.
How about competition?
Don’t worry, the Genius Act ensures that non-bank-issued stablecoins cannot compete at scale. The act explicitly prohibits technology companies like Meta from issuing their own stablecoins; they must partner with banks or fintech companies. Of course, in theory, anyone can apply for a bank charter or purchase an existing bank, but all new owners must be approved by regulators. Let’s see how long that takes. Another provision that hands the stablecoin market to banks is the prohibition on paying interest to stablecoin holders. Without the ability to pay interest to holders, fintech companies cannot transfer deposits from banks at low cost. Even a successful issuer like Circle can never touch the $6.8 trillion in deposits held by systemically important TBTF banks. Moreover, fintech companies like Circle and small banks do not enjoy government guarantees on their liabilities, but TBTF banks do. If my mother were to use a stablecoin in the future, it would have to be one issued by a systemically important TBTF bank. Baby boomers like her would never use a fintech company or small bank for this reason, because they don’t trust these institutions due to the lack of government guarantees.
U.S. President Trump’s cryptocurrency affairs coordinator David Sacks also agrees. I’m certain that many crypto business donors will be quite unhappy, as after those crypto campaign contributions, the result is being quietly excluded from the profitable U.S. stablecoin market. Perhaps they should change their strategy and truly advocate for financial freedom, rather than just providing footstools for those sitting under the toilets where “too-big-to-fail” bank CEOs do their business.
In short, adoption of stablecoins by large systemically important banks will eliminate competition from fintech companies for their deposit bases, reduce the need for expensive personnel and often underperforming compliance officers, increase net interest margin (NIM) without paying interest, and ultimately drive up their stock prices. In return for BBC’s gift of stablecoins, these large systemically important banks (TBTF) will purchase as much as $6.8 trillion in Treasury bills.
ATI: Bad Girl Yellen: Stablecoins: The BBC
Next, I will discuss how BBC will release another $3.3 trillion from the Federal Reserve’s balance sheet as inactive reserves.
Interest on Reserve Balances (IORB)
After the 2008 global financial crisis, the Federal Reserve decided banks would not fail for lack of reserves. The Federal Reserve created reserves by purchasing government bonds and mortgage-backed securities from banks, which sat idle on the Federal Reserve’s balance sheet—a practice called quantitative easing. In theory, banks could convert reserves held at the Federal Reserve into circulating cash and lend it out, but they choose not to because the Federal Reserve prints money to pay sufficient interest. To prevent inflation from rising further, the Federal Reserve sterilizes these reserves. The problem the Federal Reserve faces is that when it raises rates, interest on reserve balances (IORB) also rises. This is not good because unrealized losses in the Federal Reserve’s bond portfolio also increase as rates rise. Thus, the Federal Reserve becomes insolvent and in a negative cash flow position. However, this negative cash flow is purely a policy choice and can be changed.
U.S. Senator Ted Cruz recently suggested that perhaps the Federal Reserve should stop paying interest on reserve balances (IORB). This would force banks to offset lost interest income by converting reserves into Treasury bills. Specifically, I believe they will purchase Treasury bills because Treasury bills have high yields and cash-like characteristics.
Senator Ted Cruz has been pushing his Senate colleagues to end the Federal Reserve’s power to pay interest on reserves, believing this change would greatly help reduce the deficit.
– Source: Reuters
Why should the Federal Reserve print money and prevent banks from supporting this empire? There is no reason for politicians to oppose this policy change. Both Democrats and Republicans love fiscal deficits; why not allow themselves to spend more by releasing $3.3 trillion in bank purchasing power? Given the Federal Reserve’s unwillingness to help the Trump team achieve “America First” policies, I believe Republican lawmakers will use their House and Senate majorities to strip the Fed of this power. Thus, the next time yields spike, lawmakers will be ready to release this capital to finance their reckless spending.
Before I conclude this paper and look optimistically at the dollar liquidity the Federal Reserve will inevitably create during its tenure, I want to discuss the cautious stance Maelstrom took before Q3.
A Cautionary Tale
While I am very bullish, I believe there may be a temporary pause in dollar liquidity creation after Trump’s spending bill, the “Big Beautiful Bill,” passes.
The current version of the bill raises the debt ceiling. Although many provisions will be traded among politicians, Trump will not sign legislation that doesn’t raise the debt ceiling; he needs additional funds to finance his agenda. There are currently no signs that Republicans will attempt to force spending cuts. For traders, the question is: what will be the impact on dollar liquidity when the Treasury resumes net borrowing?
From January 1st onward, the Treasury has primarily financed the government by drawing down its checking account—the Treasury General Account (TGA). As of June 25, the TGA balance was 850 billion through debt issuance. This would result in a 461 billion.
Because of the TGA replenishment, this is not a clear Bitcoin short trade opportunity. This is a signal for cautious operation—the bull market may be disrupted in the short term; I believe that between now and the end of August, before Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole conference in August, markets will trade sideways or decline slightly. If the TGA replenishment results in negative dollar liquidity, the downside target is 95,000. If the replenishment is merely a trivial matter, Bitcoin will oscillate in the 112,000. I believe Powell may announce an end to quantitative tightening and/or other seemingly routine but significant banking regulatory changes. By early September, the debt ceiling will be raised, most funds will be replenished back to the TGA, and Republicans will focus on dispensing benefits to avoid being “Mamdani-ed” in their home districts in November 2026. Then, with an influx of money creation, the green cross star will pierce the shorts.
Between now and the end of August, Maelstrom will overweight collateralized USDe (Ethena USD). We have cleared all liquidity token positions; depending on price action, we may also reduce our Bitcoin exposure. Around April 9, we bought liquidity token risk, which achieved 2x to 4x returns for some tokens in three months. Without clear liquidity catalysts, the liquidity token market will be crushed. After that, we can confidently execute a sweep, perhaps discovering a 5x or 10x stock before another round of fiat liquidity creation slowdown in Q4 2025 or Q1 2026.
Check Boxes
Large bank adoption of stablecoins can create as much as $6.8 trillion in T-bill purchasing power.
Federal Reserve stopping IORB payments can create as much as $3.3 trillion in T-bill purchasing power.
Due to BBC’s policies, there could be as much as 10.1 trillion liquidity injection will have an impact on risk assets similar to Bad Girl Yellen’s $2.5 trillion injection… PUMP UP THE JAM!
This is another liquidity arrow that can be drawn from BBC’s policy quiver at any time. It will become particularly important after Trump’s “Big Beautiful Bill” passes and raises the debt ceiling. Soon, investors will again worry about how to get the Treasury market to absorb the massive amount of debt about to be issued without causing a market crash.
Some of you are still waiting for monetary “Godot” (a symbol of hope). You’re waiting for Federal Reserve Chair Powell to announce a new round of unlimited quantitative easing and rate cuts before you sell bonds and buy cryptocurrency. But this won’t happen, at least not until the U.S. clearly wages kinetic warfare against Russia, China, and/or Iran, or until a large systemically important financial institution is on the brink of collapse. [^7] Not even a recession would bring “Godot.” So stop listening to the idiots sitting in “cuck” chairs and start listening to the person who controls the “monster cock” (a symbol of great power).
The following charts will demonstrate the opportunity cost investors bear by waiting for monetary “Godot.”
Meanwhile, the Federal Reserve’s balance sheet (white) is declining while the real federal funds rate (gold) is rising. You might think Bitcoin and other high-risk assets would fall during this period.
Bad Girl Yellen won’t disappoint the rich; she employed ATI (Asset Targeted Issuance). Meanwhile, Bitcoin (gold) rose more than 5-fold while the RRP balance declined by 95%.
Don’t make the same mistake again. Many financial advisors are still counseling clients to buy bonds because they predict yields will fall. I agree that central banks around the world will prevent government debt market collapse through rate cuts and money printing. Furthermore, if central banks don’t act, the Treasury Department will. That’s the argument I make in this paper; I believe Bessent can release as much as 1 million by 2028, or for the Nasdaq-100 to skyrocket 5-fold to $100,000.
The real stablecoin play is not to bet on old fintech companies like Circle, but to understand that the U.S. government has just handed “too-big-to-fail” (TBTF) banks the ignition key to a multi-trillion-dollar liquidity cannon disguised as “innovation.” This is not DeFi, this is not financial freedom, this is debt monetization dressed in Ethereum clothing. If you’re still waiting for Powell to whisper “QE infinity” in your ear before daring to turn toward risk assets, congratulations—you are the one who has exited liquidity.
Instead, you should be long Bitcoin and long JPMorgan. Forget Circle. The Trojan horse of stablecoins has already entered the fortress, and when it opens, it will not bring dreams of liberalism but will be filled with liquidity for purchasing U.S. Treasuries, aimed at sustaining stock market inflation, financing deficits, and keeping baby boomers sleeping soundly. Don’t sit on the sidelines waiting for Powell to bless the bull market. BBC is no longer being hyped; it’s time for Powell to dump his liquidity onto the world.
Footnotes
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Treasury bills have no coupon and have maturities of less than one year. Treasury notes or bonds have coupons and maturities ranging from one to thirty years. ↩
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TBTF banks include: JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley, State Street, and New York Mellon Bank. ↩
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Silvergate, Signature, and Silicon Valley Bank all failed in early 2023—this was called the regional banking crisis. ↩
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Jamie Dimon is the Chief Executive Officer of JPMorgan Chase. ↩
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Source: FDIC ↩
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This estimate comes from Perplexity, which aggregated the annual costs reported by banks in their public filings. ↩