State Street Global Advisors: Are we approaching a tipping point with stablecoins?

State Street Global Advisors: Are we approaching a tipping point with stablecoins?

15 januari 2025

Bitcoin
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By William A Goldthwait, Portfolio Strategist, State Street Global Advisors

If you’re a fan of Malcolm Gladwell, you’ve likely come across his latest book, 'Revenge of the Tipping Point'. True to his signature style, Gladwell explores patterns and trends in culture and society, analyzing how they evolve from niche phenomena into mainstream movements. The stories and examples in the book are as engaging as ever, but for now, let’s focus on one trend that is reshaping the financial system: the evolution of 'cash'.

How do individuals and entities move cash efficiently across borders and through the banking system? Traditionally, this process has been expensive, slow and complex. But is that starting to change? Enter stablecoins, such as Tether and USDC, which are gaining traction as transformative tools in global finance. According to CoinMarketCap.com, Tether’s market cap has surpassed $138 billion, underpinned by the increasingly robust infrastructure.

With a new US administration seemingly open to innovation in digital finance, stablecoins could see broader adoption and utility. This raises an intriguing question: Could stablecoins expand the global use of the US dollar? The dollar already dominates international trade and finance, with over 60 countries pegging their currencies to it. If stablecoins gain further acceptance, could they disengage the traditional banking system from the payment process?

Some asset management firms are exploring the potential of tokenizing MMFs, hinting at a future where digital assets blend seamlessly with traditional financial products. While this movement is gradual, it prompts the question: When will we reach the tipping point?

The history of money market funds (MMFs) offers valuable perspective. Introduced in the early 1970s, MMFs were initially a niche retail product, offering higher interest rates than bank accounts and the convenience of check-writing from mutual fund accounts. Their rise was not without challenges; the SEC implemented Rule 2a-7 in 1983 to address regulatory issues. Growth remained modest through the 1980s, but by the 1990s, MMFs hit their tipping point.

At the start of the decade, MMF assets under management stood at just under $400 billion, according to the Investment Company Institute. By the decade’s end, that figure had soared to over $1.6 trillion—more than a fourfold increase. In contrast, commercial bank deposits grew at a slower pace, from ~$2.2 trillion to ~$3.4 trillion over the same period. This explosive growth marked MMFs as a transformative financial tool with widespread benefits.

The stablecoin market is still in its early stages, with significant learning and development required before it integrates fully into the broader financial framework. However, if stablecoins can deliver on their promise of faster, safer and more cost-effective transactions, they may very well catalyze the next tipping point in global finance.

The parallels between the rise of MMFs and the potential of stablecoins are striking. History suggests that change often starts slowly, gaining momentum until it reaches a critical mass. Are we on the cusp of a similar revolution? Only time will tell.

 

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