Cryptocurrencies may have been born in part to resist government control, but they have soared to record levels this week because Washington is finally stepping in to regulate the industry.
In what is being dubbed as “crypto week,” Congress is expected to pass a series of bills setting rules for $3.76 trillion cryptocurrency market. The bills will bring long-awaited regulatory clarity to the crypto market, which investors predict will boost their use by companies, funds, and consumers. The main bill, the GENIUS act – which regulates a subset of crypto called “stablecoins” – has already passed the Senate and is expected to pass the House on Wednesday.
“This is a time when Congress is actually acting like grownups and writing some clear rules, which is much appreciated [by the industry],” says Garett Jones, an economics professor at George Mason, and chief economist at the stablecoin rating agency, Bluechip.
Wait, what are stablecoins? Unlike the cryptocurrencies Bitcoin or Ethereum, whose often-volatile value is determined purely by market forces, the value of a stablecoin is pegged to a real-world currency – in almost all cases, the US dollar. This makes stablecoins less volatile and safer for both investments and purchases, while still offering the security and ease of payments made via the blockchain rather than traditional bank wires, credit cards, or cash.
“Good stablecoins are run like the world’s most boring banks,” explains Jones. “They are the crypto world's attempt to create something boring like US dollars or Euros or yen, something that holds its value across time.”
Amongst consumers, stablecoins are expected to gain traction in lower- and middle-income countries where trust in local banks and currencies is low. “A pretend US dollar might not be as good as a real US dollar, but it might be better than the local currency they have around,” says Jones.
What will the Genius Bill do? It requires companies and banks that peg stablecoins to the US dollar to have an equal reserve of US treasuries or other safe, real-world liquidity, upping their reliability.
Once regulated by the US government, companies are expected to create and trade their own stablecoins much more comfortably. Big banks from JP Morgan to Bank of America to Société Générale have announced plans to launch their own dollar-backed stablecoins. Jones also sees particular value for companies that make large international payments, like Apple or Amazon. “Huge B2B payments, which are clunky and difficult across international borders, can be done much easier on the blockchain.”
There is huge room for growth. The stablecoin market – currently valued at about $250 billion, is just 6% of the global crypto market’s size. Tether, the world's largest stablecoin by market value, is pegged to the dollar and valued at about $160 billion.
The global race is on. As dollar-backed cryptocurrencies circulate more widely around the world, stablecoins have become the focal point of a global race to shape the future of digital money. China and the EU are pushing ahead with their own government-backed digital currencies, driven by concerns that US stablecoins will reinforce the dollar’s dominance — or worse, trigger currency substitution, where the dollar-pegged stablecoins are used alongside or in place of local currencies.
Why is this happening now? Crypto has a champion in the White House. Since November, the Trump administration has rolled back lawsuits against major crypto firms and replaced crypto-skeptic regulators with friendlier ones. The Trump family also has direct financial stakes in the industry, launching their own memecoins and stablecoin companies. As pro-crypto legislation advances in Congress, both the market — and Trump’s wallet — stand to benefit.
But isn’t the point of crypto to be decentralized? “The world of Bitcoin is still extremely decentralized if people want to use it that way,” says Jones. Decentralized exchanges will still exist, and bad actors will still be able to use stablecoins or other cryptocurrencies to finance nefarious activities.
But for those looking for a still anonymous, but less volatile digital currency, Congress’s regulation is likely to produce a lot more options.
“This is the crypto world getting serious,” he says, “and that’s exactly what makes it useful.”
