Jefferies warns that stablecoins could threaten banks, projecting a market cap of $1.15 trillion in five years, potentially leading to deposit outflows.
Jefferies analysts have projected that stablecoins could amass a market capitalization of $1.15 trillion within five years, potentially leading to a steady withdrawal of deposits from traditional banks. This development poses a significant challenge to the profitability of established financial institutions.
While an immediate crisis is unlikely, banks might see a gradual contraction of 3% to 5% in core deposits over this timeframe, consequently increasing their funding costs and squeezing profit margins.
"The medium-term risk of a gradual deposit outflow due to new income opportunities and payment scenarios should not be ignored," analysts noted.
Stablecoins are becoming increasingly integral to cryptocurrency markets. Following the enactment of the Genius Act in the U.S., their applications have broadened, encompassing daily transactions and treasury management.
By 2025, stablecoin transactions are expected to surpass $11.6 trillion, marking a 49% rise year-on-year. Currently, the overall market valuation of these fiat-backed tokens stands at around $314 billion.
Jefferies anticipates that this valuation could escalate to between $800 billion and $1.15 trillion by 2030, which is critical for banks as stablecoins operate as digital cash around the clock, offering access to decentralized finance (DeFi) platforms with more attractive yields than conventional savings accounts.
Bank of America CEO Brian Moynihan has cautioned that the U.S. banking sector could face a potential loss of up to $6 trillion in deposits due to this trend, echoing concerns from the Institute of Banking Policy, which estimates a loss of $6.6 trillion based on a U.S. Treasury report.
Regulatory Challenges
Regulation could significantly impact the landscape, particularly with the Clarity Act in its current form, which may diminish stablecoins' appeal as a savings alternative. Its final approval remains uncertain.
"The Clarity Act will classify stablecoins as payment instruments instead of savings, closing the 'loophole for yield' that the Genius Act created," Jefferies commented.
In response to these changes, some major financial institutions are adapting; Fidelity Investments has already introduced its own stablecoin, FIDD, while both Bank of America and Goldman Sachs are looking into similar initiatives.
According to Jefferies, banks heavily reliant on retail and interest-bearing deposits are particularly vulnerable to capital flight. Institutions like Wintrust, Flagstar, WBS, EagleBank, and Axos are highlighted as the most at risk, whereas larger players with existing crypto infrastructure may have better safeguards against these shifts.
In January, Anthony Scaramucci, founder of SkyBridge Capital, criticized U.S. banks for allegedly undermining stablecoins in favor of Chinese interests.
