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Tokenisation may boost Treasury demand amid crypto volatility

Tokenisation may boost Treasury demand amid crypto volatility

GrafaGrafa2024/11/01 06:37
By:Liezl Gambe

The U.S. Treasury Department’s recent report investigates how the growth of tokenised assets, including Bitcoin (CRYPTO:BTC) and other digital currencies, could impact demand for Treasury securities.

Released by the Treasury Borrowing Advisory Committee for Q4 2024, the report suggests that institutional interest in digital assets could drive greater demand for short-term U.S. Treasuries, especially as a hedge during crypto market downturns.

The report notes that institutional adoption of high-volatility crypto assets, like Bitcoin, might increase hedging demand for Treasuries in periods of market instability.

"Institutional adoption of ‘high-beta’ bitcoin and crypto might lead to increased future hedging demand for Treasuries," according to the report, particularly when the cryptocurrency market faces heightened volatility.

This shift, described as "flight-to-quality demand," indicates a potential trend of moving from riskier assets to safer Treasuries during unstable times.

The Treasury analysis highlights that stablecoins, which are often backed by U.S. dollar reserves and Treasury securities, exemplify incremental demand for Treasuries due to digital asset growth.

Acting as a bridge between traditional and digital finance, stablecoins contribute to this increasing demand.

Beyond native crypto assets, the report emphasises that tokenisation has transformative potential for financial markets.

Tokenisation enables diverse assets, from financial instruments to tangible assets, to be represented on digital ledger systems, fostering greater efficiency and integration between traditional finance and digital assets.

If widely adopted, this technology could enhance market strategies, with Treasuries serving as both a secure asset and an integral part of tokenised portfolios.

The Treasury also acknowledges the unpredictability of "flight-to-quality demand," illustrating the complexity of using Treasuries for crypto market hedging.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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