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Just weeks after reaching record highs, the crypto market is reeling from a sharp downturn. Bitcoin has slipped near $114,000 after hitting its peak, while Ethereum, Solana, and XRP also plunged, dragging the overall market value down to $3.88 trillion, its lowest in weeks.
As the selloff deepens, Wall Street banks are raising red flags about an even bigger threat: the rise of stablecoins and their potential to trigger a massive liquidity shift that could shake the U.S. financial system.
Wall Street Sounds the Alarm
The warning comes in response to the recently passed Genius Act, which regulates stablecoins — cryptocurrencies pegged to the U.S. dollar. While intended to provide clarity, the law has sparked concerns that issuers could exploit loopholes by offering yields through affiliates.
According to JPMorgan and Bank of America, such a setup could lead to as much as $6.6 trillion in deposits leaving traditional banks for yield-bearing stablecoins. This would drain the very lifeblood of the banking sector, making it harder for banks to lend and potentially raising borrowing costs across the economy.
Why Stablecoins Worry Banks
For banks, deposits are the foundation of their lending power. A large-scale migration into stablecoins would mean fewer loans for families and businesses, weaker credit growth, and a destabilized financial system.
The risk is not purely hypothetical. A U.S. Treasury report earlier this year warned that the stablecoin market — currently around $280 billion — could exceed $2 trillion by 2028, fundamentally reshaping global finance.
Stablecoin Demand Accelerates Worldwide
At the same time, stablecoin adoption is surging globally. Tether (USDT) remains dominant, but new challengers are emerging from fintech firms, Wall Street institutions, and even Big Tech companies.
Japan’s Financial Services Agency (FSA) recently signaled that it may approve the country’s first yen-based stablecoin, underscoring how demand is spreading beyond the U.S.
Politics and Big Tech Enter the Arena
The debate is also turning political. Former President Donald Trump, now openly pro-crypto, has promoted initiatives challenging Wall Street’s dominance. Meanwhile, companies like PayPal, Stripe, and Meta are ramping up their stablecoin efforts, adding more competitive pressure on banks already under strain.
With crypto markets under stress and stablecoins gaining traction, the clash between Wall Street, Washington, and Web3 is intensifying. Whether regulators can strike a balance between innovation and financial stability may determine how the next phase of the digital asset market unfolds.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses
I’m your translator between the financial Old World and the new frontier of crypto. After a career demystifying economics and markets, I enjoy elucidating crypto – from investment risks to earth-shaking potential. Let’s explore!
