Key Takeaways
- • The 10-year US Treasury yield recently hit its highest level since 2002, while the US government ran a deficit of about US$2 trillion in the 11 months to August, according to the Fat Tail Daily analysis citing Bloomberg.
- • China's holdings of US government debt have fallen from more than US$1 trillion in 2021 to around US$620 billion, while the Federal Reserve shrank its own holdings for three and a half years until late 2025.
- • Tether held about US$141 billion of US Treasury bills and similar assets as of March, making it the 17th largest holder of US government debt by its own count.
- • Per a Federal Reserve Bank of San Francisco chart cited in the piece, stablecoin issuers grew their Treasury holdings by about US$200 billion over five years, more than 40% of what China shed.
- • The GENIUS Act requires stablecoin issuers to back tokens with safe assets such as cash or Treasury bills maturing within 93 days, structurally tying stablecoin growth to US sovereign debt demand.
Summary
Writing in Fat Tail Daily, the author argues that Washington faces a growing funding problem as traditional lenders step back. The US government ran a gap of about US$2 trillion in the 11 months to August, and the interest bill on its debt now exceeds the entire military budget. The 10-year Treasury yield recently reached its highest level since 2002, a signal that lenders are demanding more compensation for the risk.
The author points to two of the largest historical buyers. China held more than US$1 trillion of US government debt in 2021 and now holds around US$620 billion. The Federal Reserve shrank its balance sheet for three and a half years until late 2025 and has resumed buying short-term debt, though at a fraction of its Covid-era pace. The author also cites competing demand for capital from Big Tech AI spending, with Alphabet reporting negative free cash flow last quarter for the first time since its 2004 listing, and from private credit funds, some of which have begun limiting investor redemptions. The author describes these pressures collectively as the "debt hyper-complex."
The piece argues that stablecoin issuers are filling part of the gap. Tether and Circle, the two largest issuers, hold most reserves in short-term US government debt, and the GENIUS Act requires such backing. Tether alone held about US$141 billion in Treasury bills and similar assets as of March. Citing Federal Reserve Bank of San Francisco data, the author notes that stablecoin issuers have added about US$200 billion in holdings over five years, and since 2023 have added more short-term US debt than Japan. US Treasury Secretary Scott Bessent has pointed to forecasts of stablecoin market growth from about US$300 billion to nearly US$4 trillion.
The author frames this as a reversal of crypto's standing in Washington and on Wall Street, noting that JPMorgan's Jamie Dimon called Bitcoin a fraud in 2017 and that China banned crypto in 2021. The article concludes that the arrangement raises open questions about where pressure from the debt build-up will flow, and it previews a follow-up on Bitcoin's performance during the year's rise in bond yields.
The author points to two of the largest historical buyers. China held more than US$1 trillion of US government debt in 2021 and now holds around US$620 billion. The Federal Reserve shrank its balance sheet for three and a half years until late 2025 and has resumed buying short-term debt, though at a fraction of its Covid-era pace. The author also cites competing demand for capital from Big Tech AI spending, with Alphabet reporting negative free cash flow last quarter for the first time since its 2004 listing, and from private credit funds, some of which have begun limiting investor redemptions. The author describes these pressures collectively as the "debt hyper-complex."
The piece argues that stablecoin issuers are filling part of the gap. Tether and Circle, the two largest issuers, hold most reserves in short-term US government debt, and the GENIUS Act requires such backing. Tether alone held about US$141 billion in Treasury bills and similar assets as of March. Citing Federal Reserve Bank of San Francisco data, the author notes that stablecoin issuers have added about US$200 billion in holdings over five years, and since 2023 have added more short-term US debt than Japan. US Treasury Secretary Scott Bessent has pointed to forecasts of stablecoin market growth from about US$300 billion to nearly US$4 trillion.
The author frames this as a reversal of crypto's standing in Washington and on Wall Street, noting that JPMorgan's Jamie Dimon called Bitcoin a fraud in 2017 and that China banned crypto in 2021. The article concludes that the arrangement raises open questions about where pressure from the debt build-up will flow, and it previews a follow-up on Bitcoin's performance during the year's rise in bond yields.
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