Are Stablecoins and Bank Deposits Substitutes?

Abstract

We test whether stablecoins and bank deposits act as substitutes. Using local projections fit to weekly U.S. data from January 2019 to June 2025, we find that deposit rate increases predict slower stablecoin market capitalization growth. To address endogeneity, we exploit a nonlinearity in deposit rate pass-through. Unlike other money market rates, banks reprice deposits more aggressively once the federal funds rate exceeds approximately 3%. Against average ten-week stablecoin growth of 15%, ordinary least squares estimates imply a reduction of roughly 3 percentage points per basis point of deposit repricing, while instrumental variable estimates are roughly three times larger and pass a bitcoin placebo test. Effects are stronger for Circle’s USDC than for Tether’s USDT, consistent with USDC’s closer ties to U.S. depositors. Cross-sectional variation in repricing across deposit tiers provides independent supporting evidence of substitution.