Bitwise CIO: banks should raise rates to compete with stablecoins

Bitwise CIO Matt Hougan says banks facing stablecoin competition should raise deposit rates rather than lobby against yields, following a Bloomberg report on deposit flight risks.

Bitwise chief investment officer Matt Hougan says the remedy for banks worried about stablecoins is simple: pay customers more. In posts on X, he argued that community and regional lenders fearing deposit outflows should improve rates rather than push for tighter rules on stablecoin yields.

If local banks are worried about competition from stablecoins, they should pay more interest on deposits

Hougan wrote.

Hougan’s remarks arrived after a Bloomberg feature on workers being paid in stablecoins and the potential impact on local lenders that rely on deposits to fund loans. He pushed back on claims that credit would “dry up” if stablecoins compete with bank accounts, calling that “first‑order thinking.” Even if banks extend less credit when deposits fall, he said, savers holding stablecoins can route financing directly via DeFi, shifting the source of credit without harming the broader economy. In his words, the loser is bank profit margins; the winner is individual savers.

The debate has sharpened as banks lobby Congress to tighten U.S. stablecoin rules around paying yield. The recently passed GENIUS Act prohibits issuers from paying interest like banks, but some exchanges offer “rewards” on stablecoin balances. Coinbase, for example, has advertised rates above 4% on USDC, while the national average savings rate sits around 0.6% (Bankrate). This large gap explains why yield‑bearing stablecoin products continue to draw attention.

Major banks have also warned about deposit flight. Citi said last month that yield‑bearing stablecoins could trigger withdrawals from traditional banks, and community bankers quoted by Bloomberg flagged risks for local lending if deposits migrate. Others argue banks can adapt, citing pilots like digital deposit receipts that move on public blockchains while remaining insured deposits on a bank’s balance sheet.

For crypto users, Hougan’s message is straightforward: stablecoins are another venue to earn a return and move money quickly; banks can compete by raising deposit rates and building products people want. The policy question now is whether Congress revisits the yield provisions in the GENIUS Act, how far banks push on pricing and product experiments, and whether stablecoin “rewards” continue to blur the distinction between interest payments and promotional incentives.