Bitcoin and stablecoins are often lumped together, but stablecoins should be viewed as a direct competitor, Paul Beaudry and Amartya Lahiri write.JUSTIN TALLIS/AFP/Getty Images
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.
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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.
The evolution of Bitcoin has a parallel with the South Sea bubble of 1720, which was one of the greatest speculative episodes in modern history. One of the reasons that the South Sea bubble took off is that it was promoted as having value from the trade monopoly with South America that was granted to it by the British Parliament.
While most acquirers of stocks in the South Sea company bought them for speculative purposes, the narrative surrounding its potential was largely built around the value of its monopoly franchise. Once this narrative lost credibility, the price collapsed despite the fact that most investors had not bought it for its monopoly value.
Bitcoin’s future value, somewhat paradoxically, may depend on the regulatory enforcement structure of stablecoins. Bitcoin can be thought as having real value as it offers a rare service for those in search for electronic means of quasi-anonymous payments. But as long as the anonymity feature of stablecoins and Bitcoin are similar, the attractiveness of Bitcoin will likely decline for those using them to conduct illegal activities, as stablecoins are a better means of payment.
This has two effects: Bitcoin loses an important founding narrative; and it loses growth potential. Both of these are negative for the future of the price of Bitcoin.