Researchers at the Bank for International Settlements have identified a measurable connection between rising U.S. bank deposit rates and slower expansion in the stablecoin market. The working paper, titled “Are Stablecoins and Bank Deposits Substitutes?”, examines weekly data spanning January 2019 through June 2025 and concludes that higher returns on traditional deposits reduce demand for dollar-backed digital tokens.

Key Findings from the Analysis

The study covers 339 weekly observations of reserve-backed stablecoins, primarily USDT and USDC. Authors Rashad Ahmed and Iñaki Aldasoro compared changes in average bank deposit rates with subsequent movements in overall stablecoin market capitalization. They controlled for bitcoin prices, Treasury yields, federal funds rates, dollar fluctuations, broader market volatility and decentralized finance lending yields to isolate the deposit-rate effect.

Under the baseline ordinary least-squares model, a one-basis-point rise in deposit rates—equivalent to 0.01 percentage point—predicted approximately three percentage points less cumulative growth in stablecoin market capitalization over the following ten weeks. Average ten-week growth in the sample stood near 15 percent; the estimate brings that figure down to roughly 12 percent. An alternative instrumental-variable approach produced a larger estimated impact of about nine percentage points, implying growth closer to 6 percent. In both cases the modeled expansion remained positive.

The relationship proved stronger for Circle’s USDC than for Tether’s USDT. Ten-week growth for USDC was associated with declines of roughly 4.8 to 5 percentage points after a one-basis-point deposit-rate increase, compared with about 1.9 to 2 percentage points for USDT. The authors attributed the difference to USDC’s heavier use among U.S. institutions and decentralized finance participants, while USDT maintains broader circulation in offshore and emerging-market settings.

Market Context and Limitations

Reserve-backed stablecoin market capitalization rose from below $5 billion in early 2019 to more than $220 billion by mid-2025. The analysis tracks aggregate market value rather than individual account movements, so it cannot determine whether specific depositors shifted funds out of banks or which institutions were affected. Stablecoin issuers typically hold reserves in bank deposits or short-term Treasuries, which can recirculate liquidity within the banking system even as the composition of depositors changes.

The paper does not establish that total bank deposits or lending declined as a result of stablecoin growth. Its sample period includes only one prolonged high-interest-rate episode, during which most stablecoins paid no interest to holders. The authors cautioned that the emergence of yield-bearing stablecoins or tokenized money-market funds could alter the competitive dynamics observed in the study.

Comparisons with non-stablecoin cryptocurrencies showed no statistically significant response to changes in deposit rates, supporting the interpretation that the effect is specific to assets designed as dollar substitutes.

Broader Implications for Banks and Policy

The findings arrive amid ongoing discussion about competition between bank deposits and digital dollar instruments. Bank of America Chief Executive Brian Moynihan has previously warned that substantial deposit outflows into stablecoins and related products could constrain lending capacity. Separate Federal Reserve staff analysis has noted that stablecoin reserves often return to the banking system as issuer deposits, potentially altering funding composition and liquidity requirements without necessarily shrinking the overall deposit base.

By adjusting deposit rates, banks appear able to influence the relative attractiveness of stablecoins. The research suggests that deposit pricing remains one practical lever available to traditional financial institutions as digital alternatives continue to expand.