A new BIS working paper finds that stablecoins and bank deposits compete for the same pool of money. When banks raise the interest rates they pay on deposits, stablecoin market capitalization grows more slowly, suggesting holders move funds back into traditional bank accounts.
The authors use weekly U.S. data from January 2019 to June 2025. The core finding is intuitive. Since most stablecoins pay no interest, they become less attractive when banks offer better returns on deposits.
That substitution effect becomes more pronounced when interest rates are higher. Below roughly 3%, banks barely pass through Fed rate changes to depositors. Above that level, competitive pressure kicks in and deposit rates rise more aggressively, drawing funds away from stablecoins.
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