The Genius Act: Reshaping Crypto in the Next 5 Years

The Genius Act, a bill designed to regulate stablecoins, has passed the Senate and is now heading to the House. If it becomes law, it could significantly impact the cryptocurrency sector over the next five years.

Key Takeaways

• Stablecoin Dominance: The bill favors dollar-pegged stablecoins over volatile altcoins for everyday payments.
• Compliance is Key: Blockchains with robust compliance features will likely attract more stablecoin issuers.
• Institutional Influx: Stablecoin reserve requirements could channel institutional cash into the crypto market via U.S. Treasury bills.

Payment-Focused Altcoins Face Extinction

The Genius Act proposes a "permitted payment stablecoin issuer" charter, requiring stablecoins to be backed 1:1 with cash, U.S. Treasuries, or overnight repurchase agreements. This contrasts with the current lack of regulation and reserve requirements.

Stablecoins have become the primary medium of exchange on blockchains, accounting for roughly 60% of all crypto transfer value in 2024. Their price stability makes them more appealing for everyday payments compared to volatile altcoins.

If U.S.-licensed stablecoins can legally move across state lines, merchants will find it difficult to justify accepting riskier, volatile coins. This could erode the utility and investment thesis of many payment-focused altcoins.

Compliance Rules Will Pick the Winners

The new regulations will likely funnel stablecoins to blockchains that can meet stringent auditing and risk management requirements.

Ethereum already hosts a significant amount of stablecoins and has a mature DeFi ecosystem. However, its compliance stack might not be sufficient to meet the bill's requirements.

XRP Ledger (XRPL) is positioning itself as a compliance-first platform for tokenized money, including stablecoins, with built-in tools for account freezes, blacklists, and identity screening. This could give it an edge in attracting stablecoin issuers.

Both Ethereum and XRP Ledger appear advantaged compared to privacy-centric or speed-focused chains, which may struggle to meet the same requirements without expensive retrofits.

Reserve Rules Could Flood Blockchains with Institutional Cash

The act requires every dollar stablecoin to be backed by a matching reserve of cash-like assets, effectively linking crypto liquidity to U.S. short-term debt.

The stablecoin market could reach $500 billion by 2026, making stablecoin issuers major buyers of U.S. Treasury bills. This connection matters in two ways:

1. Increased demand for reserves will lead to more corporate balance sheets holding Treasuries and native coins, driving organic demand for coins like Ethereum and XRP.
2. Stablecoin interest revenue could fund user incentives, making stablecoins more attractive than credit cards for payments.

Investors should expect increased monetary sensitivity as stablecoin growth and crypto liquidity become more closely tied to U.S. debt markets. This signifies the integration of digital assets into mainstream capital markets.