The Fed needs a 24/7 system for banks to move cash. This could be the answer.

MW The Fed needs a 24/7 system for banks to move cash. This could be the answer.

By Charlie Garcia

Charlie Garcia responds to readers about 'perpetual futures' and stocks that could prosper from it

Editor's note: Columnist Charlie Garcia shares select emails from his virtual mailbag every week.

Dear Charlie,

Your article positions Circle (CRCL) as a major beneficiary if USDC becomes the settlement layer for banking system intraday credit. But Circle is basically a money-market fund with tech wrapping. If they're holding $500 billion to $1 trillion in Treasurys and rates move 100 basis points, that's a massive duration risk.

We lived through Silicon Valley Bank (SVB). I watched "safe" Treasury positions blow up when liquidity disappeared. Why wouldn't Circle face the same disaster if they scale to Fed infrastructure levels? Or are you assuming they'd have Fed backstop facilities similar to the discount window?

Also, political question: Can you imagine [Sen.] Elizabeth Warren's reaction when a private crypto company becomes systemically important to U.S. banking?

Patricia

Dear Patricia,

You're asking the right question, which is why you're in finance and not a crypto influencer with a YouTube channel.

Yes, Circle faces duration risk if it scales to the $500 billion to $1 trillion range. And yes, SVB should terrify anyone paying attention. But here's the critical difference: SVB was a bank pretending to be a tech company. Circle is a tech company that would become, if my thesis plays out, a systemically important financial institution - whether they want to or not.

Circle gets Fed backstop facilities, discount-window access, FDIC insurance on USDC (or something functionally equivalent) and enough regulatory scrutiny that its compliance department becomes larger than its engineering team. It becomes a boring utility that happens to process a trillion dollars in settlements annually.

Will Circle's executives like this? Probably not. Will they have a choice? No.

Your political instinct is correct. Pick any regulator - they'd all lose their minds. But here's the beautiful irony: The solution to "private crypto company becomes systemically important" is to wrap it in so much regulation and government backstop that it becomes de facto nationalized.

Circle becomes the post office of digital money.

Circle becomes the post office of digital money. Boring, essential, quasigovernmental and impossible to kill. Its executives will spend more time in Senate hearings than in board meetings.

As for duration risk: If Circle reaches Fed infrastructure scale and doesn't have sophisticated risk management, it deserves what happens. But unlike SVB, it won't be allowed to fail quietly. Too many banks depend on it by that point. The Fed either backs it or admits the system was always a house of cards.

I know which way I'd bet.

Charlie

P.S. Somewhere in Circle's San Francisco office, there's a founder who dreamed of disrupting banking. That person is now filling out their 47th regulatory filing of the week. This is what winning looks like.

Dear Charlie,

You explained Fed policy, made me laugh and validated my rage all in one article. That line - "And you wonder why nothing works anymore" - should be on a T-shirt.

My insurance premiums are up 40%, my grocery bill is insane, and now I find out the Fed is losing $200 billion annually on a problem they created?

If the Fed is this incompetent with banking system liquidity, why should I trust them with anything? Shouldn't I buy silver, gold and bitcoin and give up on the dollar entirely?

Peter

Dear Peter,

Should you trust the Fed? Of course not. They pay banks $200 billion a year not to use something banks actually need. Then everyone stands around, confused about why the system doesn't work.

But distrusting the Fed and abandoning the dollar are completely different moves.

Your landlord doesn't accept silver. Your insurance company doesn't take bitcoin. And the IRS will hear your theory about returning to the gold standard - right before they garnish your wages.

The Fed deserves every bit of your skepticism. Your grocery bill proves it's either lying or incompetent, possibly both. But being angry at the system and having a workable alternative to the system are two completely different problems.

One is easy. The other requires moving to El Salvador.

Charlie

P.S. I agree about the T-shirt. If I make one, I'll send you the first copy. Won't fix your grocery bill, but at least you'll look good being angry about it.

Dear Charlie,

Futures prices are already anchored in the stock markets, even without the eight-hour funding rate settlement. Technically, perpetual futures should function efficiently without the need for periodic settlements or payouts every eight hours.

Also, regarding the discussion about bank leverage, reserves, clearing and liquidity - it seems there could be a more robust approach. For instance, banks could provide security against the leverage they extend, drawing from their reserves, assets and collateral they receive from borrowers.

Leverage providers could be incentivized throughout an ongoing perpetual-futures trade by receiving a nominal, dynamically adjusted fee based on the trade's duration. That would create a simpler, more transparent and self-sustaining system without generating systemic stress.

Patrick

We're stuck with eight-hour settlements because changing requires admitting we were wrong, and financial people would rather eat glass.

Dear Patrick,

You've stumbled onto something embarrassing: The entire financial system is running on technology designed by people who thought eight-hour intervals were sophisticated because they could divide 24 by three.

Perpetual futures don't need eight-hour cycles. BitMEX picked eight hours in 2016 because it was tidy, not because physics demanded it. It's the QWERTY keyboard of crypto - we're stuck with it because changing requires admitting we were wrong. Financial people would rather eat glass.

The funding rate simply needs to keep futures prices honest by making arbitrage attractive. DeFi protocols figured this out years ago. Perpetual Protocol does it every block - constantly funding settles in seconds. No more timing games. No more sophisticated traders opening positions after funding and closing before the next one, like teenagers sneaking home after curfew.

Why haven't Binance and Bybit adopted this? Because they're making money on the current stupidity. Never interrupt an enemy when he's making a mistake - especially when you're the one collecting fees.

Now for the truly hilarious part: U.S. banks get free intraday overdrafts from the Fed. Zero cost. Just post some collateral and overdraw all you want, as long as you're square by 6 p.m.

Before 2008, banks paid market rates for intraday liquidity. This created what economists call "discipline" and normal people call "not being morons." After 2008, the Fed decided to give away the store. Massive reserves, free overdrafts, zero price signals.

The result? Banks are sitting on trillions in unproductive reserves because they have no idea what liquidity costs. Neither does anyone else.

The Fed's own economists admit intraday credit has real value, but refuse to charge for it. It's like running a bar where the drinks are free, but you need a credit card on file. Everyone gets drunk and nobody learns anything.

Your proposal - dynamic fees based on duration, real collateral, transparent pricing - isn't radical. It's how perps already work. Crypto traders in 2025 have better risk management than Bank of America.

Banks could do continuous settlement. They could price intraday credit dynamically. They could manage collateral instead of tracking it in Excel like it's 1987. Technology exists. What's missing is the willingness to admit that the current system is a tire fire wrapped in compliance theater.

So yes, your idea works. And yes, it'll happen. Either because banks wise up, or because the next crisis forces regulators to stop pretending that free liquidity and moral hazard are sound public policy.

I'm betting on the crisis.

Yours in fiscal anarchy,

Charlie

P.S. The really depressing part? Someone at the Fed likely has already written a paper explaining all of this. It's sitting in a drawer somewhere, gathering dust next to the report about how maybe we shouldn't have bailed out everyone in 2008.

Charlie Garcia is founder and a managing partner of R360, a peer-to-peer organization for individuals and families with a net worth of $100 million or more.

Agree? Disagree? Share your comments with Charlie Garcia at charlie@R360Global.com. Your letter may be published anonymously in the weekly "Dear Charlie" reader mailbag. By emailing your comments to Charlie Garcia, you agree to have them published on MarketWatch anonymously or with your first name if you give permission.

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Tiger Brokers

The Fed needs a 24/7 system for banks to move cash. This could be the answer.

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