The Economist: The Real Threat of Cryptocurrency to Traditional Banks

Source: The Economist, Translation: Chopper, Foresight News

“First they ignore you, then they ridicule you, then they attack you, and finally you will win.” This phrase is often attributed to Mahatma Gandhi, but the Indian independence leader never actually said it. However, this fabricated motto has become a popular saying in the cryptocurrency industry. Pioneers of digital finance have long endured arrogance, mockery, and contempt from Wall Street elites, and now their influence is unprecedentedly strong.

Over the past year, both bankers and digital asset practitioners have experienced a bumper harvest. The reason the cryptocurrency industry has managed to stabilize is largely thanks to the GENIUS Act passed in July this year, which provides clear legal backing for the legal status of stablecoins. Since Donald Trump won the election, market expectations have been that the regulatory environment will loosen, with bank stocks rising by 35%. Even some bankers who dislike Trump for other reasons rarely favor the regulatory policies during Joe Biden’s administration.

Nevertheless, tensions between the old and new forces are intensifying, and the threats posed by cryptocurrencies are far more severe than many bankers previously imagined. While banks can benefit from deregulation, their privileged status as the “financial aristocrats” within the Republican camp is now teetering. Sharing this status with emerging crypto industry giants is undoubtedly a long-term threat to traditional banks.

The most urgent concern for current bankers is the regulation of stablecoins. The GENIUS Act explicitly prohibits stablecoin issuers from paying interest to purchasers. This compromise was intended to prevent stablecoins from diverting demand away from bank deposits, thereby weakening banks’ lending capacity. However, a workaround has emerged: stablecoin issuers like Circle, which issues USDC, share profits with crypto exchanges such as Coinbase, and then the exchanges distribute “rewards” to users who purchase stablecoins. Traditional banks are strongly demanding that this regulatory loophole be closed.

Interest is not the only point of disagreement. In other areas, cryptocurrencies are also attempting to breach traditional financial barriers to entry. In October, Federal Reserve Board member and candidate for Federal Reserve Chair Christopher Waller suggested that more institutions could be allowed to access the Fed’s payment system. This statement caused concern among bankers. However, Waller later retracted this remark, stating that applicants for such Fed accounts would still need to hold banking licenses.

Finally, on December 12, the cryptocurrency industry successfully opened the door to the US federal banking system. US banking regulators approved the nationwide banking trust licenses for five digital finance companies, including Circle and Ripple. Although this approval does not grant these institutions the authority to accept deposits or make loans, it allows them to provide asset custody services nationwide without relying on state-level approvals. Previously, banks had lobbied intensely against granting new licenses to these companies.

Looking at each development— a speech, a bank license, a regulatory workaround for stablecoin issuers— individually, they seem insignificant. But collectively, these moves pose a serious threat to traditional banks. In fact, their core positions in lending and trading brokerage have long been eroded by private credit institutions and innovative market makers outside the banking system. Naturally, they are reluctant to lose more ground.

Cryptocurrency companies believe that the preferential policies enjoyed by traditional banks create an unfair competitive environment, damaging market competition. While there may be some merit to this claim, paying interest on stablecoins under the guise of “rewards” is undoubtedly a blatant regulatory evasion. Just a few months ago, legislators voted to ban interest payments on stablecoins, yet now they are not taking action to stop such practices. This precisely reveals the real dilemma faced by traditional banks: their political influence has significantly waned.

Traditional banks are no longer the most influential financial force within the Republican camp. Instead, the crypto industry has established a foothold among the right-wing “anti-mainstream, anti-elite” political factions in the US. The largest political action committee (PAC) affiliated with the industry has hundreds of millions of dollars in funds, ready to be invested in the 2026 midterm elections, and money has always been a powerful tool in political battles. Now, when the interests of traditional banks clash with those of new crypto giants, the outcome of the contest is no longer predetermined and may even favor the newcomers.

Once, bankers criticized the Biden administration’s strict regulations. Ironically, they now have to rely on support from a group of Democratic senators. These Democrats are more concerned about the potential risks of interest payments disguised as stablecoin rewards and the related money laundering issues. In opposing crypto companies from obtaining bank licenses, some of the largest US banks have even allied with unions and center-left think tanks. As Mahatma Gandhi never said, “The enemy of my enemy is my friend.”