Federal Reserve’s Concerns in Stablecoin Oversight
The stablecoin market continues to expand, with its total capitalization surpassing $174 billion as of November 2024. Despite the sector’s growth, former US Senator Pat Toomey has flagged key challenges delaying comprehensive regulations for issuers in the United States.
In a recent interview, Toomey outlined areas requiring clarity, particularly reserve requirements, bankruptcy handling, and regulatory oversight. He stated that the central bank’s approach to the technology is “fundamentally not friendly.”
“I think the Fed is not supportive of this innovation,” Toomey said, adding that unresolved complexities have hindered legislative progress. Such complexities include insurance coverage on reserves and establishing jurisdictional authority for stablecoin regulation.
While Toomey acknowledged these challenges, he remains optimistic about political efforts to address them. He opined that lawmakers could take significant steps toward a framework for this sector in 2025 once resolutions regarding broader administrative concerns, such as budget allocations and federal appointments, are passed.
Growing Calls for Stablecoin Regulation
The push for regulatory clarity in this sector is gaining momentum. Senator Bill Hagerty’s proposed Clarity for Payment Stablecoins Act has become a notable legislative effort.
The bill focuses on regulating smaller stablecoin issuers—those with less than $10 million in market capitalization—at the state level, excluding them from federal oversight. Industry experts have also amplified their concerns about the lack of clear policy.
Chris Dixon, a leading venture capital firm a16z executive, argued that regulatory measures to prevent systemic risks are essential. At the Permissionless III event in October, Dixon warned that this industry could face a collapse akin to the FTX crisis if it doesn’t have a robust framework.
He further noted that the robust framework could have ripple effects beyond the crypto space. Notably, stablecoin issuers are increasingly tied to traditional financial systems by collateralizing tokenized fiat with instruments like Treasury bills.
This growing interdependence has caught the attention of regulators and policymakers. Last month, the US Treasury’s Borrowing Advisory Committee highlighted the “modest but rising” demand for Treasury bills from stablecoin firms.
Therefore, a committee member suggested exploring a private blockchain system to oversee the sector. Toomey believes the sector’s challenges are not insurmountable and expects lawmakers to intensify efforts toward a precise regulation since the 2024 elections are over.
These fiat-pegged cryptocurrencies remain central to discussions as their role in the broader financial ecosystem expands.
Record $9.7B Stablecoin Inflows Could Boost Bitcoin’s Price
Meanwhile, the crypto market is witnessing record-breaking stablecoin inflows, with over $9.7 billion pouring into exchanges over the past month. This historic surge is fueling expectations of a Bitcoin rally to the $100,000 milestone before November ends.
The $9.7 billion stablecoin influx is the highest ever in a month. This surge signifies heightened speculative interest and increased liquidity, which is critical for Bitcoin’s price momentum.
Since these fiat-pegged digital assets are a bridge between fiat currencies and cryptocurrencies, they can be considered a precursor to market activity. Experts note that these stablecoin inflows reflect a growing appetite among investors.
Stablecoins’ Liquidity and Bitcoin’s $100,000 Price Target
Historically, November has been a favorable month for Bitcoin. However, the current liquidity provided by stablecoins could amplify its trajectory.
Their inflows are usually a key driver of buying pressure. When large volumes of stablecoins enter exchanges, they create conditions for higher demand for major cryptocurrencies like Bitcoin.
This demand can lead to significant price increases, as evidenced in previous market cycles.
Spot Bitcoin ETFs Record Continuous Inflows
Spot Bitcoin exchange-traded funds (ETFs) also contribute to the optimistic outlook. Bitcoin ETFs in the US marked their sixth straight week of net positive inflows, gaining over $1.67 billion in assets during the week of Nov. 11–15.
These ETF inflows reached $773 million on Nov. 20 alone, underscoring strong institutional interest. The relationship between stablecoins and Bitcoin price movements is linear.
For example, when Tether minted $1.3 billion USDT in early August, Bitcoin rebounded by 21% within a few days from a five-month low of $49,500. Hence, a similar dynamic could play out with the current wave of inflows.
