The US federal government's interest payments on national debt exceeded $1 trillion in fiscal year 2025, marking the first time debt servicing costs have surpassed both defense spending and Medicare in American history. Bitcoin advocates and traditional Wall Street analysts are warning of mounting fiscal pressures as the US Treasury positions stablecoins as a strategic tool to absorb escalating government debt.
What Happened: Record Debt Servicing
Net interest payments jumped from $345 billion in fiscal year 2020 to $970 billion in 2025, outpacing defense spending by roughly $100 billion. Total interest on publicly held debt crossed the $1 trillion threshold.
The Congressional Budget Office projects cumulative interest payments over the next decade will reach $13.8 trillion—nearly double the inflation-adjusted amount spent over the previous two decades.
The Committee for a Responsible Federal Budget warns that under alternative scenarios where tariffs face legal challenges and temporary tax provisions become permanent, interest costs could hit $2.2 trillion by 2035, representing a 127% increase from current levels.
The debt-to-GDP ratio has reached 100%, a level not seen since World War II. By 2029, it will exceed the 1946 peak of 106% and climb to 118% by 2035, according to CBO projections.
Chris Towner, an analyst at the Committee for a Responsible Federal Budget, described the potential for a "debt spiral" where rising borrowing costs force additional borrowing. "If the people who loan us money get worried we're not going to pay it all back, we could see higher interest rates—which means we have to borrow more to pay interest," Towner said.
The federal government currently borrows approximately $2 trillion annually, with roughly half allocated solely to servicing existing debt.
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Why It Matters: Stablecoin Regulation
The GENIUS Act, signed in Jul. 2025, requires stablecoin issuers to maintain 100% reserves in US dollars or short-term Treasury bills, effectively converting stablecoin companies into structural purchasers of government debt.
Treasury Secretary Scott Bessent called stablecoins "a revolution in digital finance" that will "lead to a surge in demand for US Treasuries."
Standard Chartered estimates stablecoin issuers will purchase $1.6 trillion in Treasury bills over four years, enough to absorb all new issuance during the current presidential term. That volume would exceed China's current Treasury holdings of $784 billion, positioning stablecoins as replacement buyers as foreign central banks reduce US debt exposure.
The fiscal trajectory creates competing pressures for cryptocurrency markets.
Near-term Treasury issuance absorbs market liquidity, with risk-free yields near 5% creating headwinds for equities and digital assets.
Long-term fiscal instability could strengthen Bitcoin's positioning as a non-sovereign store of value, while stablecoin regulation ties the sector directly to government debt markets.
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