Peter Schiff Warns Stablecoins Redirect Capital From Treasuries

Peter Schiff has warned that the increasing use of stablecoins could undermine the U.S. Treasury market by shifting capital away from traditional government securities. Contrary to the perception that stablecoins boost demand for Treasuries, Schiff argues that they merely reallocate liquidity from long-term bonds to digital assets, potentially driving up long-term interest rates and increasing borrowing costs for the U.S. government [1]. This shift, he suggests, could destabilize the financial system by reducing the availability of funds in conventional money markets and disrupting the flow of credit [2].

Schiff emphasized that stablecoins may weaken the resilience of the Treasury market, especially during economic downturns. He pointed out that as stablecoin reserves grow, the demand for government bonds could become more volatile, making it harder for the U.S. government to manage its debt obligations [3]. His critique raises concerns about the structural risks posed by digital assets and their potential to disrupt traditional financial systems.

The economist further noted that stablecoin issuers typically hold short-term Treasury instruments, leaving long-term bonds with less support. This trend, he argued, could lead to higher long-term yields, which in turn affect mortgage and business loan rates. Rising borrowing costs could ripple through various sectors of the economy, including housing and corporate investment [4]. Schiff also pointed out that the interest earned on stablecoin-backed Treasuries goes to issuing firms, not end users—unlike traditional Treasury-backed funds where investors receive direct returns [5].

Beyond the bond market, Schiff highlighted that the growth of stablecoins could also reduce the availability of capital for private lending. Funds that flow into stablecoins are no longer accessible to conventional banks, limiting the ability to lend to businesses and households [6]. His concerns coincide with a period of heightened regulatory scrutiny, particularly following U.S. President Trump’s endorsement of the GENIUS Act, which aims to reshape the regulatory landscape for digital assets.

The ongoing debate about the role of stablecoins in the financial system has gained traction amid the Federal Reserve’s recent decision to hold interest rates steady in July 2025. Fed Chair Jerome Powell emphasized the need for caution in rate-cut decisions, warning that premature action could compromise inflation control [7]. Schiff’s analysis adds to the discussion, questioning whether digital assets are enhancing or distorting traditional financial frameworks.

Market reactions following the Fed’s decision reflected heightened sensitivity to monetary policy, with both the S&P 500 and Bitcoin declining. The absence of a clear timeline for rate cuts has fueled speculation about a potential September move, but the uncertainty highlights the interconnectedness of traditional and digital financial markets [8].

As stablecoins gain broader institutional adoption, their impact on Treasury markets and financial stability remains a critical issue for investors and policymakers. Schiff’s warnings underscore the need for a more rigorous evaluation of how digital assets are reshaping capital allocation and whether they are serving as a complementary innovation or a destabilizing force [9].

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Source:

[1] Peter Schiff Warns Stablecoins May Curb Treasury ... (https://www.ainvest.com/news/peter-schiff-warns-stablecoins-curb-treasury-demand-boost-long-term-yields-2507/)

[2] Stablecoins Won't Boost Treasury Demand, Peter Schiff ... (https://coingape.com/stablecoins-wont-boost-treasury-demand-peter-schiff-warns/)

[3] Peter Schiff Challenges Stablecoin Impact on Treasury ... (https://www.cryptotimes.io/2025/07/31/peter-schiff-challenges-stablecoin-impact-on-treasury-demand/)

[4] Stablecoins Divert Funds From Treasuries Risks Higher ... (https://www.ainvest.com/news/stablecoins-divert-funds-treasuries-risks-higher-borrowing-costs-2507/)

[5] Peter Schiff's Warning: "Stablecoins May Shrink the Traditional ... (https://www.eblockmedia.com/news/articleView.html?idxno=24932)

[6] Schiff Warns Stablecoins May Disrupt Treasury Markets ... (https://www.ainvest.com/news/schiff-warns-stablecoins-disrupt-treasury-markets-push-interest-rates-2507/)

[7] FOMC Meeting July 2025 Highlights: Key Changes and ... (https://coingape.com/trending/fomc-meeting-july-2025-highlights-key-changes-and-market-impact/)

[8] Schiff Warns Stablecoins Redirect Capital From Treasuries ... (https://www.ainvest.com/news/schiff-warns-stablecoins-redirect-capital-treasuries-risking-higher-yields-2508/)