Banks Could Unlock $10.1 Trillion For Treasuries Via Stablecoins

Arthur Hayes, the former CEO of BitMEX, has proposed a significant shift in the financial landscape, suggesting that stablecoins issued by major banks could unlock a substantial amount of capital to purchase US Treasuries. According to Hayes, the eight largest banks in the United States hold approximately $6.8 trillion in deposits, which could be transformed into zero-duration Treasury buyers through the issuance of stablecoins.

Hayes argues that these banks, by launching their own blockchain-powered dollars, could soak up user deposits and cycle that money into Treasuries. This move is seen as a strategy to address the funding gaps in the US Treasury without causing a spike in yields. The new US Treasury Secretary, Scott Bessent, is reportedly planning to use this approach to borrow trillions each year without raising taxes, a mission similar to that of his predecessor, Janet Yellen.

Stablecoins would allow banks to turn deposits into Treasuries, unlocking up to $6.8 trillion of T-bill purchasing power. Banks like JPMorgan could launch coins such as JPMD, run them on public blockchains, and attract customers with perks like cashback and 24/7 access. This shift is not just about convenience but also about control, as stablecoins enable banks to cut costs, reduce compliance staff, and run operations through AI. Hayes estimates that this switch could save banks $20 billion a year.

JPMorgan, for instance, already has the infrastructure in place. Once customers move their deposits into stablecoins, JPMorgan can buy Treasuries with the new assets. The Fed's recent lowering of capital requirements for Treasury holdings has freed up an estimated $5.5 trillion in balance sheet capacity. This move would make it difficult for non-bank entities like Circle to compete, as the Genius Act bars tech firms from launching their own stablecoins and offering yield to customers.

Hayes also suggests that if banks successfully convert deposits to stablecoins, the added net interest margin could significantly boost bank stocks. He calculates a potential market cap boost of $3.91 trillion, or a 184% increase, across the eight largest banks. This presents a non-consensus trade opportunity for investors to go long on an equally weighted basket of the largest banks based on this stablecoin thesis.

Furthermore, Hayes believes that ending the Fed's policy of paying interest on reserves (IORB) could free another $3.3 trillion in capital, which banks could then shift into Treasuries. Senator Ted Cruz has been pushing legislation to kill the IORB payments, which would force banks to replace that lost interest income by converting reserves into Treasuries. Together, stablecoins and ending IORB could unlock $10.1 trillion in T-bill demand, dwarfing Yellen’s $2.5 trillion cash injection in 2022, which helped suppress the 10-year yield below 5%.

Hayes views this as a form of "debt monetization dressed in Ethereum drag," warning that those waiting for the Fed to announce new quantitative easing or rate cuts are delusional. He advises investors to stop betting on Circle and start buying Bitcoin and the largest banks, as the stablecoin Trojan horse is already inside the fortress, loaded with T-bill buying liquidity aimed at keeping equities inflated, deficits funded, and the elderly sedated.