Stablecoins: The End of Archaic Banking - Why Crypto's Real Revolution Is Here

Stablecoins: The End of Archaic Banking - Why Crypto's Real Revolution Is Here.pdf

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It goes without saying that as a $2.4 trillion asset class, cryptocurrency is here to stay. It is an asset class that we believe every investor can benefit from long-term. As it stands today, bitcoin dominates the category, having a market share of roughly 56%-58% of the entire space, but we believe the true value sits within the technology of blockchain, not just bitcoin itself. The real-world utility it offers is undeniable, specifically within the financial sector.

To put it bluntly, our financial system is archaic. It has notoriously been an industry that often refuses to adapt, and because of this it lacks innovation and efficiency. Every industry has gone through major technological advancement over the years, making things cheaper and more convenient for consumers, but banking consistently lags behind.

In our view, bitcoin is not a true digital currency within the crypto space. It is an investment just like any other asset that investors deem valuable. The common argument that most skeptics have about bitcoin is that it holds no real-world utility, nor does it have anything backing it except investor sentiment. We would argue that what is “backing it” is the technology of blockchain, and the idea of instantaneous money movement. That said, let’s entertain the idea of nothing backing bitcoin (full disclosure, we are indifferent to this notion). We would argue this is true for many “alternative investments”, and I’m not talking about illiquid private funds. Take collectibles for an example. In 2016, a 1952 Mickey Mantle rookie card sold for roughly $1.1 million, and that same card sold for a whopping $12.6 million in 2022. Do baseball cards hold any real-world utility? No, they are valuable because people deem they have value. Our argument would be somewhat the same for bitcoin, although it does have much more utility than baseball cards do.

The truth about digital currency is that we have been using it for decades. It is pretty much what is only used nowadays. The entirety of our money supply in the US is roughly $22-$23 trillion, but approximately only $2.4 trillion is physical currency. The large majority transfers hands digitally. For example, think about every transaction involving money you encounter throughout the year. Mortgage payments, employment income, credit cards (paying them off), etc. Virtually everything we do is dealt with via digital money transfers such as ACH payments or wires. Even checks can be categorized as such because most that are deposited do not involve touching physical cash. So, the negative connotation around the idea of a “digital currency” is nothing but ridiculous fearmongering for something everyone already uses. So how can something like digital money, that all of us use already on a daily basis, be improved? By making it more advantageous & convenient for us all.

Money movement is incredibly slow. How is it that I can order any product known to man and have it delivered to my door within hours (thanks Bezos), but I have to wait 24-48 hours while having a “maximum transfer” amount I can send per day, or get hit with a $30 “wire fee” if I need an instantaneous transfer. Even convenient apps such as Venmo take 24 hours to transfer cash to your bank. What we find even more egregious is the fact that the cash in our checking accounts earns 0% when money markets are anywhere between 3.5%-4%.

As mentioned, pretty much all of our country’s money supply sits digitally within the banking system. How it relates to us is simple. We deposit cash into our accounts, and banks then take that money and lend it out (via mortgages, car loans, etc.). The issue is not with this process, this is how every banking system operates. The issue lies within incentive. If banks are not incentivized or forced to pay the going market rate for cash, why would they? Imagine if I could hold your money, pay you nothing, and lend your money out while earning 6-7%. Sounds great to me, where do I sign? Truth is there has never been an alternative. Sure, we have money markets, but in order to access that cash we need to sell shares of that money market and wait for it to settle until the following day, then transfer it to our checking accounts which take another 24 hours. What if there was a way to have the best of both worlds? Potentially utilizing money markets as form of payment, earn the going market rate on cash, and have the ability to transfer money instantly without exorbitant fees.

In step: stablecoins. Not only do stablecoins solve both of these problems for us, they also bring in massive demand for US Treasuries (stablecoins are backed by Treasuries), which helps our government continue their massive spending spree. The government is already on board with the passing of the 2025 GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act).

It’s a win-win for all, except for the banks. If mass adoption of stablecoins happens, this would lead to either large deposits leaving banks and/or banks having to pay us the current market rate for cash, eating into their margins. Banks already see this coming though. Banks such as JPMorgan, along with many others, already have their own native stablecoin that is in use behind the scenes (JPM Coin). They utilize this more for the instantaneous transfers on their end. Stablecoins such as USDC ($60 billion market cap) are more widely used by the public. USDC is backed by roughly 75% short-term US Treasuries, with the other 25% sitting in cash. Platforms such as Coinbase utilize USDC as their native stablecoin and pay roughly 4% on cash sitting within it. You can also transfer USDC into your “digital wallet” and transfer from one person to another, instantaneously.

Our belief is that mass adoption of stablecoins will happen once a majority of businesses start accepting them as a form of payment (there are many that already do so). Average weekly stablecoin transaction volume (how often stablecoins are used) is roughly $232 billion already, and it continues to grow. There are already companies, like Gemini, that issue credit cards that pay rewards in the form of cryptocurrency such as Bitcoin, stablecoins (e.g., USDC), and roughly 50 others. Ironically this is the card that my family uses. The reward percentage tiers are currently fantastic and getting paid in cash that I can earn 4% on makes more sense to me than any “travel point” system or “cash back” card I can find (Gemini should pay me for this plug).

All this said, this is only one problem that cryptocurrency and blockchain technology will eventually solve for the masses. There are so many more use cases already being implemented behind the scenes within the banking system—such as tokenized assets, peer-to-peer lending, and more—which we will explore in upcoming insight papers.

In the meantime, we'd love to connect and explore how this evolving asset class—including stablecoins and the broader opportunities within blockchain—can best align with your personal financial goals and overall strategy, as well as the most effective ways to incorporate it into your portfolio.