Bitwise Chief Investment Officer Matt Hougan stated that U.S. banks should attract and retain customers by offering higher returns rather than complaining about stablecoins threatening their profits.

Hougan said on the X platform on Tuesday, "If local banks are concerned about competition from stablecoins, they should pay higher interest on deposits."

He added that banks' worries stem from having "viewed depositors as a free source of funds for decades."

Hougan made these remarks as Citibank indicated last month that interest-bearing stablecoins could trigger mass withdrawals from banks, while U.S. banks have been lobbying Congress to tighten laws regarding stablecoin yield payments.

In response to a Bloomberg report on Monday about workers receiving stablecoin salaries and its potential impact on banks, Hougan stated, "The panic-driven reports that stablecoins will destroy local credit markets are absurd."

Bloomberg reported that small community and regional banks, which rely on customer deposits to issue loans, face new competitive threats from stablecoins, while large banks can access wholesale market financing.

The report compared interest-bearing stablecoins to the rise of money market accounts in the 1970s, which provided a higher-yield alternative to traditional savings accounts, leading to a loss of bank funds.

Hougan added that the notion that allowing stablecoins to compete with banks would lead to a "drain" of credit is "typical first-order thinking."

He pointed out that a decrease in bank deposits could lead to a reduction in credit issuance. However, individuals holding stablecoins can provide credit directly to borrowers through decentralized finance (DeFi) applications.

According to Bankrate data, some stablecoins offer deposit yields as high as 5% on specific crypto platforms, significantly higher than the average national savings account rate of 0.6% in the U.S. and also above the 4% offered by the best high-yield accounts.

Considering inflation and bank fees, consumers who keep cash in banks long-term without earning returns often see their assets shrink.

Supporters of stablecoins argue that these tokens also offer advantages such as faster transaction speeds, lower costs, and no holding fees.

Last month, the banking industry actively lobbied to prevent stablecoin issuers from offering yields, claiming that the stablecoin regulation "GENIUS Act" has "loopholes."

The crypto industry countered the banks' concerns, warning that amendments to the bill would benefit traditional banks while stifling innovation and consumer choice.

Related: Fintech company Farmway reaches $100 million agreement to tokenize Georgian almond orchards

Original article: “Bitwise CIO: Banks Should Offer Better Rates to Counter Stablecoin Competition”

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