Opportunities for Investors in the Bitwise Stablecoin Market Estimated to Reach Trillions of Dollars

CoinW.com Report:
Author: Juan Leon, Senior Investment Strategist at Bitwise; Translation: 0xjs@
Q3 of the cryptocurrency market was very exciting.
On one hand, it’s fair to say that cryptocurrency prices didn’t show much improvement. The market remained range-bound, much like the past six months.
But on the other hand, as Bitwise’s Chief Information Officer Matt Hougan said in his executive summary, “the calm on the surface hides the tremendous progress behind it.”
We just want to highlight one aspect of this progress:
Stablecoins have become the dominant application of cryptocurrency technology.
We have always said that cryptocurrencies will find killer use cases. Well, stablecoins are it.
Why should investors care about stablecoins?
Stablecoins are no longer a secret. We have been talking about them for many years. Big companies like PayPal are launching their own stablecoins. High-level officials in the US House and Senate are discussing them. Last week, payment processing giant Stripe announced its plans to acquire stablecoin issuance platform Bridge for $1 billion, its largest acquisition ever.
So, what makes them so valuable? And why should investors care?
Well, stablecoins are different from other cryptocurrencies in that their design is to maintain a stable value relative to some asset (usually the US dollar). If you see price fluctuations in stablecoins, something is wrong. This reduces their attractiveness as an investment, but they become more practical as a medium of exchange. More importantly, this role makes stablecoins a bridge between traditional finance and the digital economy.
Not only that, they are fast, efficient, and programmable. You can send $10,000 to anyone in the world in seconds, without worrying about bank hours or lengthy settlement times. As digital assets, stablecoins can be programmed to execute smart contracts, enabling automated payments, custody services, and various decentralized finance (DeFi) applications.
That’s why stablecoin usage has skyrocketed to record levels. In the first half of this year, over $5.1 trillion in global transactions were conducted using stablecoins. That’s not far off from Visa’s $6.5 trillion.
This is not a small niche market.
Stablecoin Trading


Source: Bitwise Asset Management, data from Coin Metrics. Data range from Q1 2020 to Q3 2024.
Note: “Other” includes BUSD, DAI, FDUSD, GUSD, HUSD, LUSD, PYUSD, TUSD, USDK, and USDP.
How did stablecoins take off?
Why would traditional payment giant PayPal launch stablecoins?
The business model is too good.
It’s simple: the issuer takes in dollars (or other fiat currencies) and issues an equivalent amount of stablecoins. They then use these fiat currencies to buy US Treasury bonds and other income-generating assets. Finally, they pocket the interest income.
How well does this model work? The biggest stablecoin issuer, Tether, made more profit last year than BlackRock.
These issuers are becoming big players. As shown in the chart below, the total amount of US Treasury bonds held by the top five stablecoins surpasses that of some G20 countries like South Korea and Germany. Thus, the growth of stablecoins provides a new source of demand for US debt and helps provide liquidity to the US Treasury market, creating a net positive for stablecoins in the broader financial system.
Investors are eager to get involved. Tether’s biggest competitor, Circle, is happy to help them; the company quietly filed for an IPO this year. And although still in the works, publicly traded companies like Visa have already integrated stablecoins into their business.
US Treasury Bond Holders: Stablecoins vs. Major Foreign Holders


Source: Bitwise Asset Management, data from the US Department of the Treasury and company reports. Data as of June 30, 2024.
Note: This table is inspired by a speech by Nic Carter, founding partner of Castle Island Ventures. “Stablecoins” refer to the top five stablecoins (USDT, USDC, FDUSD, PYUSD, and GUSD) by market cap as of June 30, 2024, for which reserve attestations are available. “US Treasury Bonds” holdings include US Treasury securities, reverse repurchase agreements, and money market funds.
What does this mean for investors?
So how can investors take advantage of this opportunity?
Remember: stablecoins are not designed to appreciate. If anything, they will face the same inflationary pressures (and currency exchange risks) as the assets they are pegged to.
So, what opportunities should investors look for? And what risks should they keep in mind?
1) Publicly traded companies
Some multinational corporations are integrating stablecoins into their operations to gain a competitive edge. These companies are reflected in cryptocurrency stock indices like the Bitwise Crypto Innovators 30 Index. With stablecoins offering lower transaction costs and faster settlement times than traditional intermediaries, we expect companies like Visa and PayPal won’t be the last to leverage stablecoins. We anticipate more banks and payment processors entering the space.
2) Potential alternatives to money market accounts
For most stablecoin holders today, their stablecoins are akin to cash in a checking account: static. But what if issuers could turn some of the profits they derive from their treasury reserves into interest?
If this path opens up, stablecoins could become an attractive alternative to the $6.3 trillion money market fund industry.
For advisors with clients holding cash, stablecoins could be a useful tool in their investment portfolios.
Given that stablecoin regulation is a hot topic in the US Congress, this is worth watching.
3) Value accrual to underlying blockchains
Most stablecoin activity happens on Ethereum.
The growth of stablecoins directly contributes to network growth and stability, and indirectly affects the price of ETH.
Of course, the reverse is also true: if the stablecoin model fails, it could put pressure on network activity.
Final thoughts
How big can stablecoins get?
Consider this:
The total amount of liquid deposits in the US is around $18 trillion. Currently, stablecoins only account for 1% of that market. What would happen to their relative market share if we see widespread approval of interest-bearing stablecoins or clearer regulatory frameworks?
For investors, the message is clear: now is the time to pay attention to stablecoins.