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Tokenized Treasuries: The Big Loser From Bitcoin Price Surge

Last Updated March 5, 2024 3:59 PM
Shraddha Sharma
Last Updated March 5, 2024 3:59 PM
By Shraddha Sharma
Verified by Peter Henn

Key Takeaways

  • Bitcoin’s price rebound negatively impacted the growth of tokenized US Treasuries.
  • Investors are reportedly flocking from stable yields to attractive Bitcoin returns.
  • The $26 trillion US Treasury market is a huge opportunity for tokenized assets.

Bitcoin’s price soared from the lows of 2023 to a record $69,000 at the start of March 2024. The rebound led to tokenized US Treasuries facing stagnation. A Crypto analyst has explained why the appeal of Bitcoin‘s potential returns has overshadowed the steady, but lower, yield from tokenized treasuries.

While the tokenized financial instruments market remains a hot investment domain, US T-bills have also pulled back at press time.

Bitcoin Price Rise and Tokenized Treasuries

Tokenized US Treasuries had been on a steady growth trajectory until Bitcoin’s price recovery pulled it to a new all-time high. According to on-chain analyst Tom Wan, “the size of Tokenized US Treasuries have been growing steadily until Jan 2024 when Bitcoin was at $40k.”

Wan explained in tweet that the Bitcoin rebound from $38,000 presented more lucrative opportunities than a steady 5% return.

According to the analyst, the rise has resulted in stagnation, or even decline, in the total value locked (TVL) in popular tokenized treasury vehicles. The list includes OUSG, sDAI, USDM, and USDY. While the allure of higher Bitcoin returns has diverted attention and capital away from these stable yield offerings, tokenized projects are still growing.

The Future of Tokenized Treasury Vehicles

Wan suggested that for tokenized US Treasury projects to thrive, their focus should shift towards broader adoption and deeper integration within the financial ecosystem. The tokens should not focus on expanding their product lines into equities and bonds. This is because those types of assets carry uncertain regulatory risks and low investor interest. Instead, he highlighted the success of integrating with new Layer 2 solutions (L2s) and the potential for DeFi Treasury applications as avenues for growth.

Although tokenized treasuries offer on public blockchains have serious potential, Wan sees a lower appetite for them at the moment. But, overall, tokenization of real-world assets (RWAs) presents a $16 trillion opportunity by 2030 in a conservative scenario, according to a Boston Consulting Group report.

Significance of the US Treasury Market

The US Treasury market, valued at almost $26.5 trillion, is the largest and most liquid in the world, playing a crucial role in global finance. Yields on Treasuries set the benchmark for risk-free rates globally. Gary Gensler, chair of the SEC, emphasized the importance of the US Treasury market in maintaining the dollar’s global leadership while talking to  The Financial Times.

US Treasury Securities Issuance in $B | Source: SIFMA
US Treasury Securities Issuance in $B | Source: SIFMA

He likened its role to historical precedents set by the British and Dutch during their currency dominance. Gensler said: “Having that reliable, safe and readily accessible and tradeable asset is critical. It was critical to the British in their time as the leaders in currency.” 

According to SIFMA, the issuance, trading and outstanding YTD treasury statistics are positive. However, on March 5, the US treasury yields were weak ahead of the February payroll data.  

BTC Risk Ensures Higher Return

The Bitcoin price surge has challenged the growth of tokenized US Treasuries by drawing investors towards the cryptocurrency’s higher potential returns. On the other hand, the economics of higher return comes with higher risks.

Nevertheless, the underlying value and stability offered by US Treasuries remain undisputed. However, its expansion as tokenized assets could take a while as the broader market could grow by 2030. Analysts suggest focusing on adoption, and integration over expansion for tokenized treasuries to flourish.

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