A new report from Citi analysts challenges the popular narrative that Bitcoin will eventually dethrone the US dollar as the world’s reserve currency. Instead, the report argues that stablecoins, cryptocurrencies pegged to the US dollar, are actually reinforcing the dollar’s dominance.
“The original vision for cryptocurrencies like Bitcoin was to rival central bank-issued currencies,” the Citi analysts explain. “Some even predicted Bitcoin would end the US dollar’s hegemony. However, the rise of stablecoins, which now account for over 80% of cryptocurrency trading volume, is directly contradicting this prediction.”
The report highlights the fact that most stablecoins are pegged to the US dollar, with issuers holding reserves in both USD and US Treasuries. This inherent link to the dollar strengthens its position in the global financial system. Furthermore, Citi suggests that increased government regulation and legitimization of stablecoins could further bolster the dollar’s dominance.
“Greater regulatory clarity could significantly enhance the appeal of stablecoins,” the report states. “This could increase demand for US Treasury bills from stablecoin issuers, potentially growing from the current estimate of around 1% of purchases.” The analysts conclude that, “Rather than replacing the dollar, this type of cryptocurrency could democratize access to dollars globally, solidifying the US currency’s long-standing global dominance.”
The report also underscores the explosive growth of stablecoin usage. “Activity reached record highs in the first quarter of 2024, with $5.5 trillion in value transacted,” the analysts reveal. “To put this in perspective, Visa processed approximately $3.9 trillion in volume during the same period.”
