Bitwise’s Bitwise's Matt Hougan criticizes the comparisons between stablecoins and the 1830s free-banking era

Matt Hougan, Bitwise’s CIO, contributed to the stablecoin regulation discourse, publicly criticizing the frequent comparisons between stablecoins and the free banking era, arguing that the comparison is misleading. 

With the increased acceptance of stablecoins, arguments between supporters and critics who are wary of the risks associated with cryptocurrencies have intensified.

Matt Hougan calls for better analogies

Matt Hougan, the Chief Investment Officer at Bitwise Asset Management, has publicly criticized what he calls “careless comparisons” between stablecoins and the free-banking era of the 1830s.

He warns that such analogies distort the current policy debate. In a post on X, Hougan argued that the parallels drawn by critics of stablecoins to a chaotic period in U.S. banking history are not only misleading but “unreasonable.”

“The free-banking era started 188 years ago,” Hougan wrote. “Letters moved on horseback and Samuel Morse was still tinkering with the telegraph in the lab.”

Hougan acknowledged that analogies can be useful teaching tools, but said that this one doesn’t hold up to scrutiny. “They have to be reasonable,” he wrote

Lawmakers and regulators are currently assessing how best to regulate stablecoins. While critics argue that privately issued digital currencies could pose systemic risks, Hougan contends that the risks are being exaggerated through historical comparisons that no longer reflect technological or regulatory realities.

What was the free banking era, really?

The free-banking era in the United States lasted from approximately 1837 to 1863, marked by a proliferation of bank-issued paper currency in the absence of a national currency standard.

During this time, banks were allowed to issue their own notes, which were often backed by unreliable collateral such as low-quality railroad bonds or undeveloped land.

According to Hougan, this created a highly inefficient and unstable financial system. Bank notes traded at discounts based on how far they were from their issuing bank, and merchants had to maintain reference books to determine the value of thousands of different notes.

Redemption of notes required physical presence at the issuing bank, further complicating liquidity and confidence in the currency.

“None of these things apply to stablecoins,” Hougan emphasized.

He emphasized current and pending regulatory frameworks for stablecoins like the GENIUS Act, which imposes clear rules on asset backing, redemption terms, and operational transparency for stablecoin issuers.

Unlike the bank notes used in the 19th century, today’s stablecoins are tradable on global exchanges, with real-time pricing and the ability to redeem remotely, often within the same day.

Comparisons to the free-banking era have surfaced in Congressional hearings, regulatory white papers, and opinion columns by financial watchdogs and academic economists concerned about crypto’s potential to destabilize the monetary system.

“Analogies should clarify, not obscure,” Hougan concluded. “When it comes to stablecoins, let’s stick to facts and frameworks that reflect how they actually work.”

Hougan also highlighted the fact that state-regulated stablecoins, which some critics view as potentially risky, are capped at $10B in size. That market cap makes stablecoins “a vanishing fraction of the market,” he said, adding that most of the ecosystem, which is over 95% by his estimate, will consist of federally regulated stablecoins subject to strict asset management and redemption provisions.

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