The Federal Reserve Bank of New York published, "Stablecoins and Crypto Shocks: An Update" in a recent Liberty Street Economics blog. It states, "Stablecoins are crypto assets whose value is pegged to that of a fiat currency, usually the U.S. dollar. In our first Liberty Street Economics post, we described the rapid growth of stablecoins, the different types of stablecoin arrangements, and the May 2022 run on TerraUSD, the fourth largest stablecoin at the time. In a subsequent post, we estimated the impact of large declines in the price of bitcoin on cumulative net flows into stablecoins and showed the existence of flight-to-safety dynamics similar to those observed in money market mutual funds during periods of stress. In this post, we document the growth of stablecoins since 2019, including the evolution of the reported collateral backing major stablecoins. Then, we estimate the impact on the stablecoin industry of large bitcoin price increases that occurred between 2021 and 2025."
The piece continues, "As of March 2025, the market capitalization of stablecoins stood at $232 billion, up forty-five times since December 2019.... Over this period, the stablecoin industry has remained highly concentrated: the two largest issuers, Tether and USDCoin, currently account for about 86 percent of total stablecoin market capitalization, relatively unchanged from 2019."
It also states, "Moreover, the reported composition of collateral backing stablecoins has evolved noticeably since 2022.... The collateral of Binance-Peg (BUSD), Pax Dollar (USDP), and USDCoin (USDC) has shifted from U.S. Treasury securities to reverse repurchase agreements and cash; the collateral of Tether (USDT) has shifted from assets with credit risk, such as commercial paper and certificates of deposit, to U.S. Treasury securities. Nevertheless, as of December 2024, Tether, the largest stablecoin issuer, still reportedly holds 18 percent of its reserves in less liquid and riskier assets, such as other non-stablecoin crypto assets and loans."
On the topic of "Stablecoins' Reactions to Market-Wide Price Shocks," the blog says, "Having studied the impact of negative bitcoin price shocks on the net flows to stablecoins in 'Stablecoins and Crypto Shocks,' we now study the impact of positive bitcoin price shocks. More specifically, using data from January 2021 through January 2025, we estimate how investors in each type of stablecoin reacted to large bitcoin price increases (defined as days in the top 5 percent of bitcoin's daily return distribution). Our estimates ... show that capital flows into all stablecoins, regardless of the riskiness of their reported collateral, over the days following large increases in bitcoin prices."
It continues, "This finding mirrors, to some extent, our previous finding about periods of extreme negative bitcoin price shocks, following which riskier stablecoins experience net outflows, while those perceived as less risky experience net inflows. Taken together with our previous findings, our new results indicate that the demand for stablecoins grows along with the demand for non-stablecoin crypto assets (as proxied by bitcoins).... In other words, the demand for stablecoins appears to be tied to activity levels in the broader crypto ecosystem."
J.P. Morgan also writes on the topic in "Stablecoin Spotlight: From crypto cash to payment coins. They comment, "Stablecoins seem here to stay. A few years ago, we probably would have debated the accuracy of that sentence. Not today. The arrival of the Trump administration is not only providing a crypto-friendly environment for market participants, but also fast tracked the likelihood that stablecoin legislation could become law this year.... Furthermore, remarks from various regulatory bodies such as the Fed and the SEC have also expressed support for some form of stablecoin/digital asset legislation. If passed, this could further accelerate stablecoin adoption, moving this asset class more mainstream and further fueling growth of this market."
They say, "Should stablecoin issuers get the regulatory approval, there are numerous implications for market participants to consider. At a minimum, after being scrutinized in the last administration for any involvement with the crypto industry, market participants will have to assess and decide whether or not they want to engage with this growing asset class. In effect, what is their stablecoin strategy? ... To our knowledge, Standard Chartered already has partnerships with selected stablecoin issuers and provides banking, custody, and reserve management services. Cantor Fitzgerald services Tether's assets. To the degree more market participants are involved with stablecoin issuers, this could assist with further adoption."
JPM tells us, "[W]e think the market size for stablecoins has the potential to grow to $500-$750bn over the coming years. Admittedly, this is just our best estimate, but we find it hard to believe that the market could grow substantially larger (e.g., over $1tn) over the next few years as the infrastructure/ecosystem that supports stablecoins is far from developed and will take time to build out. Moreover, we suspect liquidity investors, whether retail or institutional, are not going to immediately jump into payment stablecoins as a cash alternative given their conservative nature in terms of how they manage their cash as a source of liquidity. As a result, while adoption is poised to grow further, it might be at a slower pace than what some might anticipate."
They write, "Even so, as of December 2024, we estimate stablecoins' reserve portfolios of ~$190bn held ~60% in Treasury bills ($114bn) and ~20% in repos ($38bn), inclusive of the amount of T-bills and repo held in MMFs.... Together, they comprise 2% of the Treasury bill market.... Assuming a 70/30 split into Treasuries and Treasury repo respectively based on the potential new market cap, this would put stablecoin issuers as the third largest buyer of T-bills (roughly $350-$525bn in exposure), though still significantly behind MMFs, all else equal."
JPM adds, "To that end, we wonder whether stablecoin issuers will get access to the Fed's balance sheet. Given the speed at which stablecoins issuers might need liquidity, access to the Fed whether in the form of reserves or ON RRP might be the only asset classes that could stem contagion risks across the financial system. However, this might be a tall order. Prior asks for access to the Fed's balance sheet from a significantly streamlined version of a bank (e.g., The Narrow Bank) or a MMF were not provided. To complicate matters, existing banks looking to issue stablecoins already have access to the Fed's balance sheet, while fintech companies do not (but some fintech companies are applying for bank charters). This could create somewhat of an uneven playing field, and harks back to the 19th century when various types of private banknotes were valued differently."
Finally, they state, "Furthermore, a stablecoin that issues coins and invests the proceeds in reserves and/or ON RRP creates other issues. For example, it could encourage flight-to-quality in a stressed scenario. What could be safer than a counterparty that only deposits your money at the Fed? And what if the traditional banking system also fled to stablecoins in a stressed scenario? There are real financial stability risks—not to mention, it could disintermediate the traditional banking system in the process.... Ironically, not only does a run from stablecoins create financial stability risks, but so might a run to stablecoins."
In other news, money fund yields (7-day, annualized, simple, net) inched down to 4.12% on average during the week ended Friday, April 25 (as measured by our Crane 100 Money Fund Index), after falling 1 bp the previous week and going unchanged two weeks prior. Fund yields should remain relatively flat until the Fed moves rates again. They've declined by 94 bps since the Fed first cut its Fed funds target rate by 50 bps on Sept. 18, 2024, and they've declined by 51 bps since the Fed cut rates by 1/4 point on 11/7. Yields were 4.14% on 3/31/25, 4.16% on 2/28/25, 4.19% on 1/31/25, 4.28% on average on 12/31/24, 4.45% on 11/30/24, 4.65% on 10/31, 4.75% on 9/30, 5.10% on 8/31, 5.13% on 7/31 and 6/28, 5.14% on 3/31 and 5.20% on 12/31/23.
The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 684), shows a 7-day yield of 4.02%, down one bp in the week through Friday. Prime Inst money fund yields were down 1 bp at 4.26% in the latest week. Government Inst MFs were down 2 bps to 4.12%. Treasury Inst MFs were down 1 bp at 4.07%. Treasury Retail MFs currently yield 3.84%, Government Retail MFs yield 3.82%, and Prime Retail MFs yield 4.02%, Tax-exempt MF 7-day yields were down 35 bps to 3.29%.
Assets of money market funds rose by $107.7 billion last week to $7.288 trillion, according to Crane Data's Money Fund Intelligence Daily. For the month of April (MTD), MMF assets have declined by $35.2 billion, after increasing by $2.8 billion in March, $94.2 billion in February, $52.8 billion in January, $110.9 billion in December, $200.5 billion in November, $97.5 billion in October and $149.8 billion in September. Weighted average maturities were at 35 days for the Crane MFA and 35 days the Crane 100 Money Fund Index.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (4/25), 23 money funds (out of 796 total) yield under 3.0% with $10.7 billion in assets, or 0.1%; 337 funds yield between 3.00% and 3.99% ($1.441 trillion, or 19.8%), 436 funds yield between 4.0% and 4.99% ($5.837 trillion, or 80.1%) and following the recent rate cut there continue to be zero funds yielding 5.0% or more.
Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.41%. The latest Brokerage Sweep Intelligence, with data as of April 25, shows no changes over the past week. Three of the 10 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
