Why could a mere 0.01% increase in bank deposit rates affect stablecoin growth?
A study by the Bank for International Settlements has found a result worth noting:
For every 1-basis-point increase in U.S. deposit rates—that is, 0.01 percentage points—the growth rate of stablecoin market capitalization falls by about 3 percentage points over the following 10 weeks.
It’s important to be clear: a 3-percentage-point drop in the growth rate does not mean stablecoin market capitalization itself falls by 3%.
Why can bank rates affect the crypto market?
Because stablecoins and bank deposits compete for funds in a way that’s easy to overlook.
Stablecoins make it convenient to trade on-chain, transfer funds, and move money between platforms. But stablecoins themselves typically don’t automatically pay interest to holders.
When banks raise deposit rates, some users may reconsider where it makes most sense to keep their money. For large sums, even a small change in returns can affect how funds are allocated.
This means stablecoins compete not only with other crypto assets, but also with traditional cash-management options such as bank deposits and money market funds.
Of course, this study shows a statistical relationship under specific conditions. It doesn’t prove that bank rate hikes will necessarily slow the growth of all stablecoins. Trading demand, demand for U.S. dollars, cross-border payments, and market conditions also affect the size of the stablecoin market.
The competition for stablecoins doesn’t happen only on the blockchain. It also plays out in the interest-rate tables of bank accounts.
A study by the Bank for International Settlements has found a result worth noting:
For every 1-basis-point increase in U.S. deposit rates—that is, 0.01 percentage points—the growth rate of stablecoin market capitalization falls by about 3 percentage points over the following 10 weeks.
It’s important to be clear: a 3-percentage-point drop in the growth rate does not mean stablecoin market capitalization itself falls by 3%.
Why can bank rates affect the crypto market?
Because stablecoins and bank deposits compete for funds in a way that’s easy to overlook.
Stablecoins make it convenient to trade on-chain, transfer funds, and move money between platforms. But stablecoins themselves typically don’t automatically pay interest to holders.
When banks raise deposit rates, some users may reconsider where it makes most sense to keep their money. For large sums, even a small change in returns can affect how funds are allocated.
This means stablecoins compete not only with other crypto assets, but also with traditional cash-management options such as bank deposits and money market funds.
Of course, this study shows a statistical relationship under specific conditions. It doesn’t prove that bank rate hikes will necessarily slow the growth of all stablecoins. Trading demand, demand for U.S. dollars, cross-border payments, and market conditions also affect the size of the stablecoin market.
The competition for stablecoins doesn’t happen only on the blockchain. It also plays out in the interest-rate tables of bank accounts.