GENIUS Act Supporting Stablecoins Offer Opportunity During Instability

Forbes

2 days ago

11 July 2022, Baden-Wuerttemberg, Rottweil: The logo of the stablecoins Tether USDT and USD Cohn ... More USDC can be seen on the screen of a computer in an office. Photo: Silas Stein/dpa (Photo by Silas Stein/picture alliance via Getty Images) dpa/picture alliance via Getty Images
The U.S. Senate passed the Guiding and Establishing National Innovation for U.S. Stablecoins ('GENIUS') Act in June 2025, regulating stablecoins and the Act is now headed to the House of Representatives to be reconciled with the House's Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act. GENIUS represents a landmark milestone not only for the cryptocurrency industry, but also for the U.S. tax system. While the GENIUS Act establishes a tight regulatory framework for a novel use of digital currency in the U.S. market and it is backed by the U.S. dollar, enforcement will be challenging. The act establishes significant penalties for unlicensed issuance but tracking the movement of stablecoins may need additional monitoring and regulatory systems. Determining tax implications with the rapid movement of stablecoins will also require further guidance.
Stablecoins being backed by the U.S. dollar is especially powerful and lends to the international reliance on U.S. backed currencies. In the same month that stablecoins hit the Senate floor under the GENIUS Act, the Israel-Iran conflict surged. Stablecoins have, historically, flourished where there is economic instability and global crisis may further support the cross-border reliance on the stability of the U.S. currency. Stablecoins are accepted globally because they are pegged to the U.S. dollar. flow of assets moves rapidly, outpacing the rate at which the law can adapt.
Stablecoins are a class of cryptocurrency designed to maintain a stable value by tying their worth to traditional assets, such as fiat currencies, specifically, the U.S. dollar. This backing aims to reduce the volatility that is associated with other cryptocurrencies, such as Bitcoin (BTC), which have shown to be increasingly volatile because of their magnetic response to supply and demand, user sentiment, and government regulations.
More specifically, the stablecoin is capable of maintaining stability by pegging its value on a 1:1 basis to an underlying asset, meaning that for every stablecoin in circulation, there is an equivalent amount of that asset held in reserve to back it. These coins are housed and exchanged on decentralized networks, blockchains, which act as a transparent ledger to account for all transactions. Unliked traditional payment systems, such as credit cards or wire transfers, the decentralized structure does not need intermediaries, enabling consumers to move funds rapidly and without the additional intermediary and exchange fees. Stablecoin allows for reduced transaction costs, increased speed, and the expansion of investment opportunities and integration, without a reporting trail. Regulation Of Stablecoins Widens Trust But Clarity Is Needed
The GENIUS Act provides a regulatory framework to mitigate the risk associated with digital currency, especially cryptocurrency. to do exactly that. The bill outlines a federal regulatory framework that provides clearer rules for operation, issuance, and reserve requirements. Some of the bill's requirements include 100% reserve backing with U.S. dollars, or similar assets along with disclosure and audit requirements including prohibilitions on misleading representations on whether the stablecoin is government-backed or insured. For foreign issued stablecoins, the legislation requires the Federal Reserve to conduct a study regulatory reciprocity, which signals a broader interest in aligning international frameworks.
Further guidance on applicable fees on transactions, cross-border use, tax implications and applicability especially with use in non-treaty countries, and privacy considerations will need to be further detailed. While the GENIUS Act brings clarity for regulatory matters, issues concerning consumer protection remain unanswered. Future legislation may need to address necessary consumer protection measures, such as deposit insurance, dispute resolution, and limited oversight to all regulators. Significant treasury regulations may be necessary to fully address tax implications, particularly in the estate and gift tax area on transfers of and by stablecoins and similar digital currency. The GENIUS Act is the beginning of signaling acceptance of a currency system that is increaseing being globally embraced but will need significant additonal provisions to address the implications of transactions made with stablecoins.
Additonally, while stablecoins have gained favor for cross-border payments, the Foreign Account Tax Compliance Act ('FATCA'), Report of Foreign Bank and Financial Accounts ('FBAR'), and Statement of Specified Foreign Financial Assets ('Form 8938') imposing significant reporting obligations on foreign holdings and transactions add additional layers of complexity and the need for clarity in the application to stablecoins. Under FACTA, for instance, foreign banks must identify U.S. account holders and report their financial details to the IRS, making compliance and enforcement dependent on institutional cooperation, which may be inapplicable due to stablecoins being built on public blockchains. With stablecoin, users are able to download a wallet, receive stablecoins, and move funds globally without triggering institutional reporting requirements.
This is where the institutional gap begins to widen. An individual who is equipped with financial and legal advisors would be able to shift assets to the stablecoin network or decentralized finance ('DeFi') protocols swiftly, limiting IRS visibility by not holding assets in reportable institutions. For those who do not fall within the crypto-savvy elite or do not have sophisticated advisors, they will find themselves facing mandatory disclosure and also full exposure of their assets. Digital tools promise access, but in practice, the lack of reporting standards in the crypto universe tends to favor those who are already positioned to navigate around friction. The Hidden Opportunity During Instability With Stablecoins
In a situation where a country is facing an economic and political collapse and is liquidating national assets, such as foreign exchange reserves, government-held equities, enterprises, and commodities, including oil reserves and gold, at steep losses, a wealthy investor may be able to profit from the buy opportunity especially when they have access to moving funds quickly using stablecoins. In this scenario, a strategic buyer may be able to use stablecoins to invest through holding companies, to buy ports, land, or tech infrastructure. This transaction would move quickly and be difficult to trace fully
In the current regulatory landscape of cryptocurrency, the GENIUS Act may live up to its name as a first smart stepintegrating with the global, fast-paced, economic landscape but enforceable oversight and additional regulations to address reporting, compliance, and taxation as the stablecoins move through transactions will be vital to its longterm success. Future regulations may address wallet level transparency thresholds, stablecoin transaction reporting triggers, and most importantly, international coordination to make the use and U.S. participation in the global market with stablecoins effective and seamless.