Bitcoin and stablecoins are often lumped together, but stablecoins should be considered direct competitors, write Paul Bewdley and Amartya Lahiri.Justin Tallis/AFP/Getty Images
Paul Bewdry is a professor at the University of British Columbia’s Vancouver School of Economics and a former deputy governor of the Bank of Canada.
Amartya Lahiri is a Royal Bank Professor at the Vancouver School of Economics.
Since its introduction in 2009, Bitcoin has received increasing attention from investors, regulators, and technology enthusiasts. Bitcoin, which operates on a peer-to-peer network using blockchain technology, was the first operational cryptocurrency made available to individual users. Reflecting this increased attention, the market price of Bitcoin on virtual currency exchanges rose from US$0.06 in July 2010 to more than US$120,000 last fall. However, Bitcoin has fallen sharply recently.
Since July 18, 2025, when the American Genius Act was passed, the market price of Bitcoin has fallen by approximately 40%. Bitcoin is currently below $70,000. The Genius Act created a legal framework to regulate stablecoin payments, making them a more reliable and less volatile means of payment. Could the attractive characteristics of stablecoins contribute to Bitcoin’s downfall and limit its future growth?
Bitcoin’s appeal lies in three characteristics. It was one of the first large-scale applications of blockchain technology. It was a potential rival to government-issued fiat currency. And it offered the ability to make digital payments that avoid the hassle of cash while maintaining the (semi-)anonymity of transactions. Bitcoin’s private currency features have been particularly appealing to those seeking a means of payment that is not easily tracked by regulators.
In the world of cryptocurrencies, a new type of asset was introduced in 2014 in the form of stablecoins. They differ from Bitcoin in that they are backed by regular assets and their value reflects the assets backing them. The US stablecoin space received a major boost with the passage of the Genius Act.
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The Act introduced regulatory oversight for stablecoins, including mandatory reserve backing for stablecoin issuance, and provided a clear framework for determining reserves and their auditing. This law provided much-needed transparency to investors in this sector and clarified the value of their investments. The Genius Act effectively made the value of stablecoins predictable, making them a superior means of payment.
Bitcoin and stablecoins are often lumped together in commentary on cryptocurrencies and the impact of the Genius Act, but for some users stablecoins should be seen as direct competitors to Bitcoin. Bitcoin originally attracted two types of investors. Investors who appreciated the possibility of facilitating transactions anonymously. and those who want to speculate on the future value of Bitcoin. Stablecoins offer an alternative to Bitcoin for those focused on transactions. Bitcoin probably has an advantage over Bitcoin in this regard, as it is as anonymous as Bitcoin, but much less volatile.
Stablecoins’ superiority over Bitcoin in transaction capabilities may explain why monthly transactions using stablecoins have increased significantly since the passage of the Genius Act, while transactions using Bitcoin have declined by more than 20 percent, according to the Visa Onchain Analytics Dashboard and BitInfoCharts.
More importantly, estimates of the volume of illegal transactions using Bitcoin suggest that a large portion (60 to 85 percent) of such transactions may have migrated to stablecoins. This switch should become a certainty as stablecoin acceptance continues to improve. This makes Bitcoin’s only use for speculation.
The evolution of Bitcoin has similarities to the South Sea Bubble of 1720, one of the greatest speculative episodes in modern history. One of the reasons for the South Sea Bubble was the touted value of the British Parliament-granted trade monopoly with South America.
Although most of Nankai’s stockholders bought the stock for speculative purposes, the narrative around the company’s potential was built primarily around the value of its exclusive franchise. Once this story lost credibility, the price crashed despite the fact that most investors did not buy it for its exclusive value.
Somewhat paradoxically, Bitcoin’s future value may depend on the stablecoin’s regulatory enforcement structure. Bitcoin can be considered to have real value because it provides an unusual service to those seeking a quasi-anonymous electronic means of payment. However, to the extent that stablecoins and Bitcoin have similar anonymity features, stablecoins are a better means of payment, which is likely to make Bitcoin less attractive to people who use Bitcoin to conduct illegal activities.
This has two implications. Bitcoin loses an important founding story. and lose the potential for growth. Both of these are negative for the future of Bitcoin price.
