The U.S. Senate Just Passed a Landmark Cryptocurrency Regulation Bill. Here's What Investors Need to Know.

On June 17, the U.S. Senate officially passed the Guiding and Establishing National Innovation for U.S. Stablecoins (Genius) Act, which will create a federal regulatory framework for stablecoins. The bill will now head to the House for review, with a final signature by President Donald Trump expected before the end of the summer.

As might be expected, crypto market participants widely hailed the news, and stocks tied to stablecoins surged. Here's what you need to know.

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A Genius move?

The Genius Act will become the first major piece of crypto legislation passed by the Trump administration, which came into office promising a huge overhaul of the crypto sector. Previous actions, such as creation of the Strategic Bitcoin Reserve, occurred only via executive order.

Image source: Getty Images.

The Genius Act legislation is important because it helps to define the playing field for stablecoins, which have been one of the fastest-growing sectors of the crypto market. In 2020, stablecoins were valued at about $20 billion; today, they're valued at $250 billion. According to Treasury Secretary Scott Bessent, they have the potential to be worth as much as $2 trillion in just a few years.

What are stablecoins?

Simply stated, stablecoins are digital currencies that are pegged 1:1 to the value of another asset. In 90% of the cases, stablecoins are pegged 1:1 to the U.S. dollar. But there's no reason a stablecoin couldn't be pegged to, say, the Japanese yen.

These stablecoins can be used to facilitate international trade, make digital payments, and participate in the world of decentralized finance (the blockchain version of traditional finance). The Treasury Department has even hinted that stablecoins could become a tool to reduce the nation's $37 trillion debt load and bolster the value of the dollar.

Potential Genius investment opportunities

The good news is that there are several different ways to participate in this growing investment trend. The most obvious way, of course, is to invest in one of the top stablecoins. Right now, the two big stablecoins are Tether (CRYPTO: USDT) and USDC (CRYPTO: USDC), and together, they account for nearly 85% of the value of the $250 billion stablecoin industry.

However, unless you're planning to participate in decentralized finance via new stablecoin yield strategies, you'll be holding an asset that will always be valued at $1. That's what makes these coins stable -- they're always supposed to hold their value since they're backed by cash. For that reason, they're often referred to as digital dollars.

The next option is to invest in one of the top stablecoin issuers. The popular pick right now is Circle Internet Group (NYSE: CRCL), the issuer of the USDC stablecoin.

On June 5, Circle went public via an initial public offering (IPO) and has been absolutely on fire since then. Circle is the only publicly traded pure-play stablecoin issuer, which helps to explain why investors just can't seem to get enough of it.

However, other publicly traded companies have either launched stablecoins of their own or are planning to do so in the future. For example, PayPal (NASDAQ: PYPL) launched a stablecoin back in August 2023. And just as news was breaking about the passage of the Genius Act, the Wall Street Journal reported that both Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT) are exploring stablecoins of their own.

What could possibly go wrong?

New stablecoin legislation is a big step forward for the crypto market. As Trump noted in a social media post, the legislation will make the U.S. the "UNDISPUTED Leader" when it comes to digital assets. The stablecoin industry looks ready to explode in value over the next few years, and the U.S. should be a key player.

But here's the thing: Stablecoins -- which are supposed to be stable -- have the potential to be extraordinarily volatile. That's what happened during the previous crypto bull market rally, when a popular stablecoin (TerraUSD) suddenly lost its peg to the dollar, costing investors billions of dollars and causing a cascading series of events that eventually contributed to the so-called crypto winter of 2022.

Moreover, potential conflicts of interest could cause investors to lose faith in stablecoins. It's important to note that World Liberty Financial, a crypto venture affiliated with the Trump family, recently launched a stablecoin of its own. That has some politicians -- including some senators who voted against the Genius Act -- asking very serious questions about stablecoins.

Still, it's hard not to be excited about stablecoins. They seem poised to revolutionize the world of finance, and just about everyone -- from Wall Street bankers to Washington politicians -- seem to be embracing them. It doesn't take a genius to understand that investing in this new trend early could be one way to lock in impressive long-term returns.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dominic Basulto has positions in Amazon, Circle Internet Group, and USDC. The Motley Fool has positions in and recommends Amazon, PayPal, and Walmart. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short June 2025 $77.50 calls on PayPal. The Motley Fool has a disclosure policy.