GENIUS Act Could Let Bitcoin Repos Back Stablecoins, Fed Warns
Federal Reserve Governor Michael Barr praised the newly enacted GENIUS Act for clarifying stablecoin regulation but warned its reserve criteria could allow issuers to back stablecoins with Bitcoin repurchase agreements. Since El Salvador recognizes Bitcoin as legal tender, providers may classify Bitcoin repos as permissible reserves, exposing tokens to sharp BTC price swings that could threaten their one-to-one peg. Barr also flagged a fragmented oversight framework, with overlapping federal and state regulators creating regulatory arbitrage risks and uneven capital requirements. He cautioned that uninsured deposits and broad “incidental” digital-asset services could trigger bank-run scenarios and operational stress. Additionally, Barr highlighted consumer protection gaps, noting that some dollar tokens remain outside the Act’s scope and lack fraud safeguards. Traders should monitor legislative updates closely, as these loopholes in stablecoin regulation may increase market volatility and affect both stablecoin and BTC markets.
Bearish
This regulatory warning highlights significant risks around using Bitcoin repos as reserves, which could undermine stablecoin stability and feed through to Bitcoin price volatility. In the short term, traders may reduce BTC exposure amid heightened risk of sudden price swings and potential regulatory gaps. Over the long term, persistent uncertainty and the need for stricter stablecoin regulation could dampen institutional appetite and limit Bitcoin’s demand, reinforcing a cautious or bearish stance.