Stablecoin CRACKDOWN!! This is What The FED Says!!

The Federal Reserve is coming for stable Coins this has all been revealed in a Fed report that alleges stable coins are A risk to the financial system and Implies that they unregistered Securities that need to be regulated Today we're going to break down this Report and tell you exactly what it Could mean for the crypto market so if You hold any crypto what's in this video Cannot be Missed the report we be summarizing Today is titled quote runs and flights To safety are stable coins the new money Market funds it was published by the New York branch of the FED which apparently Does good research last month we'll Leave a link to the full report in the Description if you're interested now the Report begins with a brief introduction Wherein the authors explain what stable Coins and money market funds are if You're watching this video well chances Are that you know what a stable coin is What you may not know is that most Stable coins are backed by US Government Debt this makes stable coins akin to Money market funds which are also backed By US Government debt money market funds Are also designed to be pegged to a Dollar the difference is that money Market funds share some of the yield on Their reserves with their holders a trfy Stablecoin with yield if you will this

Means that stable coin Co and money Market funds are vulnerable to runs that Is everyone asking for their money at The same time this forces stable coin Issuers and money market funds to sell Their reserves which can result in them Not having enough money to meet Withdrawals if they have to sell those Reserves at a loss being unable to honor All customer withdrawals at the same Time causes the value of stable coins And money market funds to fall below Their dollar pegs for stable coins this Is called a dpeg for money market funds This is called breaking the buck and It's only happened twice in 2008 and March 2020 now of course stable coins Have deeg on multiple occasions and the Author's highlight to the collapse of Terra's us stablecoin in May 2022 and The deeg of circles usdc in March this Year if you watched our video about the Usdc dpeg you'll know it actually wasn't Circle's fault to refresh your memory Silicon Valley Bank collapsed after it Experienced a bank run usdc dep pegged After Circle revealed that it held a Large portion of its cash Reserves at Svb after svb got bailed out Circle got That cash back and usdc subsequently Reped again not crypto's fault trfi Fault on that note you should know that A large portion of the stable coins in In circulation are technically backed by

Money held in Money Market funds According to tether's most recent Reserve attestation more than 10% of the Usdt in circulation is backed by money Sitting in Money Market funds and According to circle's transparency page Over 90% of the usdc in circulation is Backed by money held in the circle Reserve fund a money market fund managed By asset manager Black Rock If you watched our video about the debt Cealing being raised you'll know all the Debt issuance by the US Treasury Department could cause instability in Money Market funds logically this could Create risks to stable coins by Extension oddly enough this is something The authors of the report do not mention Coincidentally though the report itself Is about the similarities of stable Coins dep pegging and money market funds Breaking the buck this is more more Significant than you think money market Funds are securities regulated by the SEC drawing parallels with stable coins Therefore invites regulatory scrutiny We'll come back to all of this later on Though anyways in the second part of the Report the authors give some additional Background info about stable coins and Money market funds they highlight the Fact that the total market cap of stable Coins has skyrocketed over the last four Years from $5 billion in 2019 to over

$125 billion in April this year they Explain that there are two categories of Stablecoin those that are based in the United States and those that are based Elsewhere AKA offshore and Within These Categories there are three subcategories Of stable coins those backed by Traditional assets those backed by Crypto and algorithmic staple coins Again if you're watching this video Video then chances are you know about Each of these crypto categories and Types what you may not know however is That a whopping 96% of the total stable Coin market cap is made up of stable Coins backed by traditional assets which You'll recall is mostly US debt another Thing you might not know is that only a Handful of entities can mint and redeem Stable coins with issuers like tether And circle the overwhelming majority of Stable coin users must buy and sell Stable coins on the secondary Market Such as on cryptocurrency exchanges Speaking of which you should know that You can get trading fee discounts of up To 60% on the best crypto exchanges over On the coin Bureau deals page the link To that will be down in the description Now what's funny is that the authors Refer to Precious Metals such as gold as Risk assets in the context of reserves This is funny because central banks Around the world have been accumulating

Gold at record levels over the last year You'll know this if you watched our Video comparing gold and Bitcoin what's Nice is that the reports authors explain How most of the stable coin types work In detail in the appendix what's not so Nice is that they refer to Dows like Make a DA as companies implying that Their tokens are securities well at Least they didn't go out of their way to Bash these stable coin niches like other Reports have done now regarding Market Funds the authors start by underscoring Something mentioned a few moments ago They are regulated by the SEC and the Report literally says they are quote Like stable coins and like stable coins Money market funds have grown to $5 Trillion up almost 2x over the last 10 Years as you can see though some types Of money market funds have grown faster Than others the dark blue is for money Market funds backed by US Government Debt the light blue is for those backed By private assets and the green is for Tax exempt money market funds not Surprisingly it's the smallest category What is surprising though is just how Much the money market funds backed by US Government debt have grown their assets Under management are up about 5x over The last 10 years and they account for Most of the money in Money Market funds Later on the authors explain this was

Due to SEC regulations regardless the Authors then switch to looking at the Similarities and differences between Money market funds there's not too much Worth pointing out here beyond what I Already mentioned the authors seem to Imply that money market funds are better Because they're bought by institutional Investors they also compare the reserves Of money market funds and stable coins Notice how B USD and usdp have similar Reserve compositions to money market Funds this similar composition could be A part of why the SEC targeted paxos Over its issuance of B USD note though That the details of the scrutiny are Unknown anyhow the authors go on to Analyze the Run risk of money market Funds they explain that during times of Crisis investors will typically switch Their money out of the riskier money Market funds into the less risky ones as You might have guessed that means Switching from private assets to US Government debt as such it was actually The money market funds backed by private Assets which broke the buck back in 2008 And March 2020 meanwhile the money Market funds backed by US Government Debt saw massive inflows as you can see Here it's possible that we'll see the Same phenomenon during the next Crisis And this ties into the third part of the Report and that's the data interestingly

The authors's used data from coin gecko For their analysis this is interesting Because they probably would have gotten A more accurate reading if they used Onchain data it's the FED after all Surely they have access to this type of Data in any case the authors examined Stablecoin flows and pegs during two Events the collapse of Terra Us in May 2022 and the D pegging of circles usdc In March of this year obviously the Authors included data from the months Just before and just after to get the Full story not only that but the authors Analyzed almost every stable coin you Can think of they even analyzed the Value of stable coins being staked on 10 Different blockchains they did this Using defi Lama so I suppose that counts As onchain analysis you can learn more About onchain analysis in the Description by the way I digress now in The fourth part of the report the Authors do a detailed analysis of the Data points I just discussed first they Analyzed how stable coins behaved during Periods of stress in the crypto market For reference periods of stress mean the Days that bitcoin's BTC saw abnormally Large losses naturally during periods of Stress in the crypto market algorithmic And crypt back stable coins experience Large outflows while offshore stable Coins see smaller outflows conversely

Onshore stable coins those based in the US remember experienc inflows signaling A flight to Quality second the authors analyzed how Stable coins behaved when terra's us Collapsed last May lo and behold it was The same story but to the extreme Algorithmic Crypt back and offshore Stable coins saw enormous outflows with Onshore stable coins experiencing Enormous inflows third the authors Analyzed how stable coins behaved when Circles usdc deeg this March the first Infographic here is seriously concerning It's almost certainly meant to imply That any banks serving stablecoin Issuers are unsafe note that Banks Serving stable coin issuers are facing Scrutiny as you watch this video more About that in the description moving on Now what's strange is that the authors Claim that there was no change in flows When usdc D pegged even though their own Infographic shows otherwise you can Clear see that the market caps of usdt And TUSD increased significantly after The dpeg with bu USD and usdc continuing To fall for months what's stranger is That the authors admit that there was a Change in flows when usdc dep pegged Just a few sentences later what's Annoying is that they don't explain why This happened now far be it for us to do The fed's work for them but it's because

Us-based stable coins are at high risk Of a regulatory Crackdown anywh who by This point you're probably wondering why The authors wanted to analyze stablecoin Flows on blockchains the answer is Because they wanted to see if there was A similar phenomenon seen during deegs As during break the buck events namely People moving money within the same Institution the authors found what you'd Expect on bigger blockchains the stable Coin flows are exactly as noted above Moving from algorithmic and crypt backed To onshore stable coins in the case of The Terra collapse or from onshore Stable coins to Offshore stable coins in The case of the usdc dpeg on smaller Blockchains however the inflows and Outflows are the same regardless of the Stable coin type in other words crypto Holders perceive smaller blockchains to Be inherently riskier during times of Stress in the crypto Market even more so Than stablecoin issuers Apparently another fascinating finding Is is the Threshold at which stable coin Holders start to panic based on the Available data the authors determined That stablecoin holders start to panic When a stable coin Falls to 99 in their Opinion this is what counts as an Official stable coin dpeg the Fascinating thing here in this case is That a 99 C dpeg only results in

Outflows of around 3% which don't get me Wrong is quite a bit when you're dealing With a stable coin worth tens of Billions the thing is that the authors Found no increased outflows for further Deegs down to 98.5 to put things into perspective a Fraction of a percent is considered Breaking the buck for a money market Fund and enough to cause massive flows As such you could say that stable coin Holders are less prone to panic than Money market fund holders in the Author's opinion they're just Inexperienced now in the conclusion the Authors reiterate that stable coins Perceived to be safe experience inflows During periods of stress in the crypto Market they also reiterate that stable Coins see outflows from blockchains Perceived to be safe regardless of the Perceived safety of the stable coin in Question and then they put this as their Final statement quote should stable Coins continue to grow and become more Interconnected with key financial Markets such as short-term funding Markets they could become a source of Financial instability for the broader Financial system typical Fed so then What does all of this mean for the Crypto Market well the answer ultimately Depends on what the purpose of this Report was from our perspective its

Purpose was to throw the issue of stable Coin regulation into the sec's Jurisdiction this requires a bit of Backstory so if you've watched any of Our videos about stablecoin regulations You'll know that stablecoin issuers Particularly those based in the US s Have been trying to classify themselves As payment stable coins that's because It would put them under the jurisdiction Of the Federal Reserve which regulates Money this is why fed chairman Jerome Powell's statement that the FED sees Stable coins as a form of money was so Significant it seemed to confirm that The FED sees stable coins as being under Its jurisdiction the caveat there is That the fed's regulation of stable Coins could be even more aggressive than The sec's what this report suggests However is that the FED no longer wants To deal with stable coins it's quite Possible that the reason for this pivot Is what we alluded to in the intro Issues elsewhere in the financial system Whatever the case though it's clear from Our perspective that the Hot Potato has Been passed writing a report that Underscores the similarities between Stable coins and money market funds and Effectively claiming that stable coins Should be regulated by the CC seems to Be more than circumstantial it's also Very important for those unfamiliar the

New York fed is very influential if you Want actual circumstantial evidence look No further than circle's recent move to Throw its weight behind binance in its Case against the SEC this is unprecedented considering Circle usdc was and technically still is A competitor to B USD which the SEC Alleges is a security in its binance Lawsuit Circle jumping in to help defend Binance could therefore be evidence of The idea that the FED has pass the Baton To the SEC additional evidence can be Found in the idea that Circle planned on Becoming a National Bank regulated by The FED these plans were recently Scrapped due to regulatory Changes now assuming we're correct then This means that the SEC could soon come Knocking on the doors of us stable coin Issuers and this is very likely if the SEC wins its case against binance the Caveat in circle case is that asset Managers like Black Rock have Significant Sway With Regulators such as The SEC in theory this should protect Circle from undue scrutiny but in Practice it might not be so clear-cut Another thing we've noticed in our Analysis of regulators like the SEC is That Mega Banks also have significant Sway the SEC actually seems to be Struggling to satisfy both of these Influential groups now if Mega Banks get

The upper hand then it's safe to assume That the SEC will crack down on stable Coin issuers of all kinds that's simply Because there's over a 100 billion Dollars of money backing stable coins That the mega Banks want back in their Coffers not in Shadow Banks or other Assets if Black Rock gets the other hand Though then it's safe to assume that the SEC won't be cracking down on Circle Recall that black rock manages most of Usdc reserves it stands to lose tens of Billions in the event of a Crackdown on The flip side Black Rock could gain tens Of billions if usdc circulating Supply Increases come to think of it the fed's Recent report confirms that if there was A disruption to Offshore stablecoins or Even just a crypto Market crisis of some Kind then onshore stable coins like usdc Stand to benefit some would say that This creates an incentive for Circle and Black rock to make something like this Happen others would say that black Rock's spot Bitcoin ETF application Offers an additional incentive because It's believed the SEC will only approve It once most of btc's trading volume has Come on Shore that means trading against Stable coins like usdc on exchanges like Coinbase which has also partnered with Black rock never mind that there's been Lots of speculation about Black Rock Wanting to buy BTC at a discount anyway

Speculation aside it's clear that the Regulatory scrutiny of stable coins is Increasing again whether it's coming From the fed or the SEC is arguably Irrelevant the only thing we can do is Keep track of these developments and Adjust accordingly so you can rest Assured that we will continue to keep You f folks informed and up to Speed and that's all for today's video If you found it informative smash that Like button to let us know if you want To stay informed subscribe to the Channel and ping that notification Bell Pronto and if you want to inform others Take a second to share this video with Them before you go if you're looking to Maximize your crypto gains or just keep Your crypto safe check out the coin Bureau deals page remember that it has Up to $40,000 in bonuses on the best Crypto exchanges it's also got the Biggest discounts on the best hardware Wallets so the link to that will be in The description thank you all so much For watching and I'll see you in the Next one this is Guy signing Off


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