STABLECOINS COMPETE WITH BANK DEPOSITS AS INTEREST RATES INFLUENCE CRYPTO DEMAND, BIS FINDS

In brief: 

₿- Higher bank deposit rates are associated with slower growth in reserve-backed stablecoin market capitalisation, according to BIS research covering US data from 2019 to 2025.

₿- USDC showed a stronger relationship with bank deposit rates than USDT, while the findings highlight how traditional financial products can influence stablecoin demand

Stablecoins are increasingly connected to traditional finance, and new research from the Bank for International Settlements (BIS) suggests that their growth depends partly on how much interest banks offer depositors. The findings point to an emerging competitive relationship between digital dollar tokens and conventional bank accounts, with potential implications for banking, cryptocurrency adoption, and monetary policy.

In its October 2026 working paper, Are stablecoins and bank deposits substitutes?, researchers examined US data from January 2019 to June 2025. Their analysis found that higher bank deposit rates were associated with slower growth in the market capitalisation of reserve-backed stablecoins.

Higher bank interest rates can slow stablecoin growth

Stablecoins are digital tokens designed to maintain a relatively stable value, commonly through a peg to the US dollar. Like bank deposits, they can provide liquidity and support payments, although most stablecoins offer holders little or no direct interest.

The BIS research indicates that these overlapping functions can influence where people allocate their money. When banks increase the returns available on deposits, holding funds in non-interest-bearing stablecoins may become less attractive. Consequently, stablecoin market capitalisation can grow more slowly.

The relationship was particularly pronounced when US interest rates were higher, and banks faced greater pressure to offer competitive deposit returns. The researchers used this pattern to test whether the relationship reflected substitution rather than broader movements in financial markets.

USDC shows a stronger relationship than USDT

The study found a more pronounced response for Circle’s USDC than for Tether’s USDT. The researchers suggest that this difference may reflect USDC’s closer links to US depositors and institutions.

Their analysis also found that the relationship persisted across different deposit products and extended to stablecoins supplied to decentralised finance (DeFi) lending protocols. A placebo test found no equivalent effect for cryptocurrencies other than stablecoins, supporting the argument that the findings reflect a specific relationship between bank deposits and stablecoins.

What the findings mean for banks and crypto markets

The research highlights a potential connection between bank deposit pricing and the expansion of the stablecoin market. If stablecoin adoption continues to grow, competition for funds could become increasingly relevant to banks’ funding strategies and the transmission of monetary policy.

However, the findings do not establish that stablecoin growth necessarily reduces total bank deposits or lending. Instead, they identify evidence that consumers’ and institutions’ allocation decisions respond to changing deposit returns.

For the cryptocurrency sector, the results suggest that stablecoin adoption depends not only on blockchain infrastructure and digital-asset demand but also on competition with traditional financial products.