Republicans in the US House of Representatives are planning to set up a subcommittee on altcoins. It is stated that there will be new appointments within the committee.
Market warning due to altcoins
One area that US regulators are watching closely is the widely expanding crypto stablecoin market. The stablecoin market has already grown to over $200 billion last year. But one academic has warned that a major stablecoin crash could severely impact the US bond market.
Stablecoins are basically digital assets pegged to fiat currencies like the US dollar. Some of the most popular stablecoins currently in use are Tether (USDT), USD Coin (USDC), and Binance USD (BUSD).
Stablecoins have been the first choice of crypto investors who want to trade different digital assets or convert these assets into fiat money. Eswar Prasad, professor of economics at Cornell University, said he has spoken to several regulators who are concerned about the impact of stablecoins on traditional financial markets.
Risk to bonds and treasury
cryptocoin.com As we mentioned, USDT stablecoin issuer Tether holds more than 58% of its reserves in US Treasuries. It also equates to a staggering $39.7 billion. Similarly, USDC stablecoin issuer Circle has approximately $12.7 billion worth of Treasury in reserve. BUSD issuer Paxos owns $6 billion in US Treasury bonds.
Now, a potential run on a stablecoin will cause users to use their crypto assets for fiat. This, in turn, will cause the issuer to sell their holdings in the reserves, which could lead them to sell large amounts of US Treasury. Switzerland’s St. Speaking to CNBC at the Crypto Finance Conference in the city of Moritz, Prasad said:
“I think the concern of regulators is that if there is a loss of trust in stablecoins … then you could experience a wave of redemptions, which means that stablecoin issuers need to buy back their Treasuries.
Even in a highly liquid market, large redemptions can create turmoil in the underlying securities market. Given how important the Treasury securities market is to the broader financial system in the United States… I think regulators are rightly concerned.”
Can create selling pressure
He mentioned that bond market sentiment is already fragile in the US right now. Therefore, such a stablecoin run event could lead to a multiplier effect and put a huge selling pressure on Treasuries.
The collapse of the TerraUSD stablecoin created shock waves in the broader crypto space last year. Last year, the Fed warned that ‘stablecoins continue to fluctuate and many bond and bank loan mutual funds remain vulnerable to redemption risks’.
Establishing committee for altcoins
Republicans in the United States House of Representatives are reportedly planning to increase their control over the crypto industry by forming a new subcommittee. According to a January 12 report by Politico, North Carolina Representative Patrick McHenry, chair of the House Financial Services Committee, said he plans to form the subcommittee, in part because of a “major loophole” in the committee’s current structure.
The new panel, which will focus on issues related to digital assets, fintech, and financial inclusion, will be chaired by Arkansas Representative French Hill, and Ohio Representative Warren Davidson will serve as vice president. “We need to respond to oversight and policy-making in a new asset class,” McHenry said.
The reported legislative resolution represents one of the first steps of the House of Republicans in the 118th Congress since the political party took majority control of the legislature on January 3. Because Republicans were unable to elect a Speaker of the House, lawmakers were unable to pass rules, determine committee appointments, and pass legislation for four days in the new session. There were 15 rounds of voting for California Representative Kevin McCarthy to officially hold the gavel.
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