Today in crypto, a new working paper from the European Central Bank has some stark warnings about the impact of stablecoins on European banking and policymaking, Iran crypto exchange Nobitex saw a 700% rise in crypto outflows within minutes of the US-Israel attack, and industry observers cast doubt on whether US lawmakers can pass crypto market structure legislation before November’s midterm elections.
Stablecoins could weaken bank lending and monetary policy in Europe: ECB
The European Central Bank said increasing stablecoin use may pull money out of bank deposits and weaken the way monetary policy flows through to lending, according to a new ECB working paper.
Growing adoption of stablecoins, which are digital assets often pegged to currencies such as the US dollar or euro, is expected to draw funds away from traditional bank deposits, the ECB said in its latest working paper series, “Stablecoins and Monetary Policy Transmission,” released Tuesday.
“Our analysis shows that rising interest in stablecoins is linked to a measurable decline in retail bank deposits and a reduction in lending to firms,” ECB staff said, adding that stablecoins can reduce the amount of credit banks provide to the real economy.
The ECB noted that the effects are nonlinear and vary depending on the scale of stablecoin adoption, their design features and how they are regulated.
The report is part of the ECB’s ongoing efforts to monitor stablecoins, whose market capitalization has more than doubled over the past three years to $312 billion and is projected to reach $2 trillion by 2028.
“Banks rely heavily on deposits as a stable and low-cost source of funding to support lending to households and businesses,” the paper said. “When deposits decline, banks may be forced to rely more on wholesale or market-based funding, which is typically more expensive and less stable,” it added.
Iranian crypto outflows spike 700% after US-Israeli airstrikes
Iran’s top crypto exchange saw a significant spike in crypto withdrawals within minutes of the US and Israel launching strikes in Tehran on Saturday. However, a widespread internet outage curbed additional outflows.
In a post on Monday, Elliptic said crypto outflows from the Nobitex exchange surged by more than 700% to over $500,000 within minutes of the first airstrikes, with a chart showing that outflows reached nearly $3 million in a single hour later that day.
Elliptic said the sharp rise in outflows “potentially represents capital flight from Iran,” with its initial tracing showing that many of those funds were sent to foreign crypto exchanges.
“This allows funds to be moved out of Iran while avoiding some of the scrutiny of the global banking system,” Elliptic said.
However, crypto outflows from Nobitex fell sharply after Saturday, which fellow crypto forensics platform TRM Labs attributed to the Iranian regime enforcing strict internet blackouts.
Iran’s internet connectivity reportedly fell by approximately 99% shortly after the conflict unfolded, TRM noted.
Can US lawmakers pass crypto market structure before the midterms?
While US Senate lawmakers have been working to pass a comprehensive digital asset market structure bill since July, some industry observers in Washington say progress could be “on hold” due to government gridlock.
Since the House of Representatives passed the CLARITY Act last summer and sent the legislation to the other chamber, lawmakers have faced a historically long government shutdown, partisan divides on ethics and debates over stablecoin yield that have likely slowed progress on the bill, which could be further hampered by the upcoming US midterm elections in November.
Eight months ahead of the midterms, one version of the market structure bill focused on commodities regulations has passed the Senate Agriculture Committee, while members of the Senate Banking Committee have yet to address a bill on securities laws and regulations after the panel cancelled a markup in January.
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