Stablecoins, the new kid on the crypto block, may be killing Bitcoin

Paul Beaudry is a professor at the Vancouver School of Economics at the University of British Columbia and a former Deputy Governor at the Bank of Canada. Amartya Lahiri is Royal Bank Professor at the Vancouver School of Economics. Since Bitcoin was introduced in 2009, it has enjoyed increasing attention from investors, regulators and technology geeks.

Operating off a peer-to-peer network using blockchain technology, Bitcoin was the first operational cryptocurrency to become available to private users. Reflecting this rising attention, the market price of Bitcoin on crypto-exchanges has risen to over US$120,000 last fall, from US$0.06 in July, 2010.

Bitcoin, however, has been swooning lately. Since July 18, 2025, the day the U.S. Genius Act passed, the market price of Bitcoin has dropped by around 40 per cent. Bitcoin is now under US$70,000. The Genius Act created a legal framework for regulating payment stablecoins, making stablecoins a more reliable and less volatile means of making payments.

Could the attractive features of stablecoins be contributing to the downfall of Bitcoin and limiting its future growth? The allure of Bitcoin lay in three features: It was one of the first large-scale applications of the blockchain technology; it was a potential rival to government-issued fiat money; and it provided the ability to make digital payments that could preserve the (quasi) anonymity of transactions while avoiding the messiness of cash.

The private currency feature of Bitcoin was particularly enticing to those wanting a means of payments that is not easily traced by regulatory authorities. The cryptocurrency landscape saw the introduction of a new type of asset in 2014 in the form of stablecoins. These are different from Bitcoin in that they are backed by regular assets and their values reflect the asset that back them.

The stablecoin space in the U.S. received a huge boost through the passage of the Genius Act. Rita Trichur: As Ottawa embraces stablecoins, regulator warns of financial crime risks The Act introduced a regulatory oversight for stablecoins which included mandatory reserve backing for issuing stablecoins as well as stipulating a clear framework for determining reserves and their audits.

The Act provided much needed transparency to investors in this sector, and clarified the value of the investment. The Genius Act effectively made the value of stablecoins predictable, making them a good payment instrument. While commentary on cryptocurrencies and the impact of the Genius Act often lumps Bitcoin and stablecoins together, stablecoins should be viewed as a direct competitor to Bitcoins for a segment of users.

Bitcoin originally attracted two types of investors: Those who appreciated its potential to facilitate transactions anonymously; and those who wanted to speculate on the future value of Bitcoin. Stablecoins offer an alternative to Bitcoins for those focusing on transactions. On this dimension, it dominates Bitcoin, as it is arguably as anonymous but much less volatile.

This dominance of stablecoins over Bitcoins in its transactions feature may explain why – according Visa Onchain Analytics Dashboard and BitInfoCharts – since the passing of the Genius Act, monthly transactions using stablecoins have risen substantially while those using Bitcoin have decreased by more than 20 per cent.

Even more telling, estimates of the volume of illegal transactions using Bitcoin suggest that a majority (60 to 85 per cent) of such transactions may have migrated to stablecoins. As the acceptance of stablecoins continues to improve, this switch should only solidify. This will leave Bitcoin with only one use: speculation.