Higher Bank Deposit Rates May Slow Stablecoin Growth, BIS Paper Finds

Highlights

A Bank for International Settlements (BIS) working paper finds that higher U.S. bank deposit rates were associated with slower stablecoin growth. A 1 basis point increase in rates predicted a decline in average ten-week market-capitalization growth from about 15% to about 12%. Under the authors’ preferred estimate, growth slowed to about 6%, although they noted limitations in that method. The relationship was stronger for Circle’s USDC than Tether’s USDT. The findings suggest banks may influence stablecoin adoption through deposit pricing, but do not establish that stablecoins have caused bank deposit or lending losses. The study covers one high-rate episode.

Sentiment Analysis

• The article’s tone is primarily neutral and analytical. It reports the paper’s estimates and explains the possible connection between deposit rates and stablecoin growth without presenting the relationship as proof of causation.
• There is a cautious, mildly negative implication for stablecoin growth: higher returns on bank deposits may make stablecoins less attractive to some users. The reported association is stronger for USDC than USDT, but growth slowed rather than reversed in the estimates described.
• The discussion of banks is mixed. Deposit pricing may help institutions retain customers, while paying more can increase funding costs. The article also notes potential concerns about lending capacity and borrowing costs, alongside an analysis explaining how issuer reserves can return to banks as deposits.
• Limitations temper the conclusions: the sample includes one high-rate episode, and the paper does not establish actual losses in deposits or lending. Overall, the sentiment is cautious and balanced, with uncertainty emphasized over definitive predictions.

Article Text

A working paper from the Bank for International Settlements (BIS) examines whether banks can affect the growth of stablecoins by changing the rates they pay on deposits. The researchers, Rashad Ahmed and Iñaki Aldasoro, analyzed weekly data from January 2019 to June 2025. Their analysis accounted for factors including bitcoin prices, Treasury yields, and broader financial conditions. They report that increases in average U.S. bank deposit rates predicted slower growth in stablecoin market capitalization.

The paper’s central estimate links a one-week, 1 basis point rise in deposit rates with lower stablecoin growth over the following ten weeks. A basis point is just 0.01 percentage points. In the reported comparison, average ten-week stablecoin market-capitalization growth declined from about 15% to about 12%. The finding concerns a slower pace of growth, not a fall in the market’s overall size.

The authors also present a preferred estimate that adjusts for the possibility that banks raise deposit rates in response to stablecoin growth. Under this approach, the estimated effect was roughly three times larger, with growth slowing to about 6%. The researchers flagged weaknesses in this method, so it should be interpreted cautiously. Both estimates described in the paper show growth continuing, rather than reversing.

The relationship was stronger for Circle’s USDC than for Tether’s USDT. The authors said this difference was consistent with USDC’s closer ties to U.S. users. The result suggests that the competitive relationship between bank deposits and stablecoins may vary by issuer and user base; it does not, on its own, demonstrate why individual users choose one product over another.

The findings contribute to a broader debate over whether stablecoins and related products could draw deposits away from banks. Bank of America CEO Brian Moynihan warned in January that as much as $6 trillion in deposits could move into stablecoins and related products offering returns. He said such a shift could potentially reduce banks’ lending capacity and raise borrowing costs. That warning describes a possible risk, while the BIS paper focuses on the relationship between deposit rates and stablecoin growth.

The location and form of stablecoin reserves also matter to how flows affect banks. A December Federal Reserve staff analysis explained that money placed in stablecoins can return to banks as deposits made by issuers. In that case, total deposits could remain unchanged even as the identity of the institution supplying bank funding changes. The analysis also noted that larger uninsured balances could prompt banks to hold more liquid assets, potentially leaving less capacity for long-term loans issued by financial institutions.

Competing for depositors can carry costs for banks. Offering higher rates may help retain customers, but it also raises banks’ funding costs. The Federal Reserve analysis suggested banks could offer better rates to customers most likely to switch while maintaining lower rates for less mobile depositors. This approach highlights how banks might respond selectively rather than raising rates uniformly across all accounts.

The BIS paper does not establish that stablecoins have caused bank deposit losses or reduced lending. Its sample covers one high-rate episode, and its findings may not hold as market conditions change. The authors also noted that the expansion of yield-bearing stablecoins and tokenized money market funds could alter the competitive landscape. They concluded that banks “retain some influence over the pace of that adoption through deposit pricing.”

Key Insights Table