American banking giant Citigroup has shared a highly bullish forecast of the stablecoin market in its latest market perspective report. Alongside this intriguing insight, Citigroup has also highlighted potential hurdles and roadblocks for these fiat-peg virtual assets.
US Regulatory Framework To Spur Stablecoin Growth
In a market report released last week, Citigroup is backing the stablecoin market to witness at least a 7x supply growth over the next five years. The multinational investment bank has tied this bullish position to the obvious intentions of the current US administration to draft policies that support the growth of the digital asset industry.
Notably, in January 2025, US President Donald Trump ordered the creation of a crypto working group to create a federal regulatory framework in line with the demand of the nascent industry.
According to Citigroup, the establishment of this regulatory framework, as well as increased adoption of digital assets by existing financial institutions, is expected to drive the demand for stablecoins. Data from DefiLlama shows that the value of the stablecoin market grew by 30x in the last years as the total crypto market surged by over 1400% in the same time.
While Citigroup notes it’s difficult to make future predictions, the current scenario and past performances suggest stablecoin supply could rise by $1.6 trillion by 2030 in a base case 2030. In a bullish scenario, the investment bank predicts the stablecoin market could gain by $3.7 trillion, while a bearish case would only support market growth by $0.5 trillion.
Interestingly, Citigroup also explains that a US stablecoin regulatory framework would boost the demand for dollar risk-free assets within and outside the US. This is because stablecoin issuers are required to hold US Treasuries or other low-risk assets as collateral for each circulating stablecoin.
In the base case scenario, the American bank expects the surge in stablecoin demand to result in a $1 trillion purchase of US Treasuries.
What Are The Challenges For Stablecoins?
While being largely optimistic on the stablecoins’ potential for growth, Citigroup has also shared certain potential challenges these virtual assets may face in adoption.
A stablecoin represents a virtual cryptocurrency with a fixed value that is pegged to an existing fiat currency. Presently, US dollar-pegged stablecoins are strongly dominant in the market. Therefore, it is likely that other nations may view stablecoins as a tool to sustain the US financial hegemony.
In this case, Citigroup expects nations in Europe and China to invest in central bank digital currencies (CBDCs) or stablecoins pegged to their native fiat currencies. Therefore, the stablecoin market may likely be 90% dollar-denominated by 2030.
Furthermore, Citigroup notes that stablecoins bear a run risk in the case of a potential de-peg. The investment bank explains that a major de-pegging event could drastically reduce crypto liquidity, affecting trading platforms and the general financial market.
At press time, the stablecoin market is valued at $237.25 billion, with Tether (USDT) remaining the market leader with a 62.65% dominance.
Featured image from Financial Times, chart from Tradingview
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