"The Genius Act" has come out, and some say that stablecoins are investment vehicles?

One of the hottest topics in the crypto world these days is probably that Trump has "stirred things up" again. Just three days ago, on July 18th, Trump officially signed the "Guidance and Establishment of the United States Stablecoin Innovation Act" (also known as the "GENIUS Act" that we are familiar with) at the White House. This act can be said to mark the first formal establishment of a regulatory framework for digital stablecoins in the United States, with Bitcoin reserves and digital asset reserves officially becoming part of the federal strategy.

On the same day, July 18, David Sack, known as the 'Crypto Tsar' and an artificial intelligence and crypto advisor to the White House, emphasized two key legislative initiatives from the federal government during a digital asset press conference: the 'GENIUS Act' and the market structure regulatory framework. These two bills will also be expedited. Although Trump is known to be 'unreliable', this stablecoin bill undoubtedly brings many positive factors to the cryptocurrency space. Today, the Sa Sister team will chat with all of our old friends about the 'GENIUS Act' and related stablecoins, discussing the potential regulatory direction for future crypto assets.

01 Does the introduction of the “GENIUS Act” make stablecoin investments more secure?

The Sa Jie team discovered that there are two extremes in the understanding of stablecoins among old friends. The first extreme is the belief that stablecoins are completely different from virtual currencies and are not influenced by virtual currency regulations, especially the regulatory policies on virtual currencies in mainland China. Some even believe that the notification prohibiting "token issuance" in mainland China does not apply to stablecoins. The other extreme is the belief that stablecoins can appreciate in value like Bitcoin and can generate huge profits in a short period, making them a very good investment tool.

Both of these concepts actually have significant issues. Regarding the belief that stablecoins and virtual currencies are completely different, as well as the understanding that the issuance of stablecoins in mainland China is unregulated, the Sa Sister team has previously written to refute this. I will not elaborate further here. We mainly discuss the latter misconception: does the introduction of the "GENIUS Act" mean that stablecoins are now more suitable for investment? Or can stablecoins make big profits like Bitcoin investments? The answer is undoubtedly no.

The key difference between stablecoins and virtual assets like Bitcoin is that stablecoins do not appreciate in value; their price fluctuations are entirely dependent on the fiat currency they are pegged to. In fact, if we remove the context of blockchain, the Hong Kong dollar is a typical stablecoin, because it is tied to the US dollar, making it a "stablecoin" without blockchain backing. Would anyone claim that the Hong Kong dollar is an investment tool? From a general perspective, such a statement is clearly somewhat inappropriate. In other words, holding stablecoins largely equates to holding the cash that the stablecoins are pegged to. Therefore, whether it is the "GENIUS Act" or other stablecoin regulatory legislation, it will not change the nature of stablecoins as a tool for preserving capital rather than as an investment target.

To put it more straightforwardly, the emergence of the "GENIUS Act" may benefit the institutions and companies issuing stablecoins, rather than the stablecoins themselves. Stablecoins are like shadows of the fiat currencies they are pegged to, and the prospects of a stablecoin entirely depend on the fiat currency it is pegged to. This also reflects the definition of stablecoins in the "GENIUS Act"—"digital assets that maintain a fixed value through the support of fiat currencies or other secure reserves."

02 What impact does the "GENIUS Act" have on businesses and trade

Friends have previously asked what qualifications are required to issue stablecoins in places like the United States, Hong Kong, and Singapore? What are the admission standards? Friends are also concerned about what conveniences stablecoins can bring to trade and payments. In short, will the "GENIUS Act" have an impact on ordinary businesses?

The team of Sister Sa first answers the question, whether the "GENIUS Act" stipulates the admission standards and qualifications for stablecoin issuers? The answer is certainly affirmative—Article 5 of the "GENIUS Act" stipulates the qualifications for issuing payment stablecoins, stating that only those authorized to issue payment stablecoins can be legally permitted to do so. Specifically, issuers of payment stablecoins must meet the following conditions: subsidiaries of insured deposit institutions authorized to issue stablecoins (subsidiaries regulated by relevant federal banking agencies); federally qualified non-bank payment stablecoin issuers (non-FDIC insured institutions regulated by the Office of the Comptroller of the Currency ("OCC")); or state-qualified payment stablecoin issuers operating under state standards that are essentially similar to federal standards (state chartered entities regulated by state banking agencies). Meanwhile, the "GENIUS Act" also stipulates that stablecoin issuers with a market capitalization exceeding $10 billion will be subject to federal regulation by appropriate federal banking agencies. These provisions essentially establish the qualifications and admission standards for institutions capable of issuing stablecoins.

Answering the second question, do stablecoins have a positive impact on cross-border trade between enterprises? The answer is also affirmative. In the past, cross-border transfers from the United States to Hong Kong could take five to six days and were costly. Stablecoins will significantly improve the efficiency of cross-border payments and reduce costs, which is actually a tool that benefits cross-border trade. Of course, in the long term, there may also be negative impacts on general enterprises. For example, the large-scale development of stablecoins could directly lead to a reduction in bank deposits, which in turn affects the lending capacity of banks. If a company's cash flow relies on bank loans rather than capital market financing, then the large-scale development of stablecoins is likely to affect the operations of such companies. Of course, these can only be considered as "secondary disasters." In fact, the tremendous convenience brought by stablecoins for cross-border transfers is what truly benefits enterprises engaged in cross-border trade.

03 Final Thoughts

The Sa Jie team finally talks with friends about the potential development of stablecoins in mainland China. The US dollar stablecoin can actually help the United States consolidate its position in the global diplomatic and financial system to a great extent. A simple example is that the US dollar is in fact the circulating currency in many countries (such as the frequently cited Argentina and Turkey). The US dollar stablecoin is likely to undermine the functions of the central banks in these countries, thereby reinforcing the position of the US dollar. At the same time, the US dollar stablecoin also seems to have an impact on the currently rising trend of non-US dollar settlements, which are all challenges.

In the end, the Sa Jie team wants to reiterate that stablecoins still belong to the category of virtual currencies and are still subject to strict regulatory influence in the mainland. Financial activities related to virtual currencies are all illegal. Additionally, due to the lack of a systematic and independent regulatory framework for stablecoins, they may also encounter issues related to disguised public deposit absorption as stipulated in China's "Regulations on the Prevention and Handling of Illegal Fundraising." Engaging in stablecoin-related businesses may also touch upon restrictions on cross-border capital flows in the foreign exchange management regulations. These are all the red lines of red lines.