Source: The Economist
Compiled by: Chopper, Foresight News
"First they ignore you, then they laugh at you, then they attack you, then you win." This phrase is often attributed to Mahatma Gandhi, but the leader of the Indian independence movement never actually said it. Nevertheless, this fabricated maxim has become a popular mantra in the cryptocurrency industry. The pioneers of digital finance once endured the arrogance, ridicule, and disdain of Wall Street elites, but now, their influence is stronger than ever.
The past year has been a period of bounty for both bankers and digital asset practitioners. The cryptocurrency industry's ability to gain a firm foothold is largely due to the GENIUS Act passed in July, which provided a clear legal basis for the legitimacy of stablecoins. Since Donald Trump won the election, market expectations of a more relaxed regulatory environment have caused bank stocks to rise by 35%. Even if some bankers dislike Trump for other reasons, very few of them favored the regulatory policies of the Joe Biden administration.
Despite this, tensions between the old and new forces are intensifying, and the threat posed by cryptocurrency is far more severe than many bankers once anticipated. While banks may benefit from regulatory loosening, their privileged status as the "financial aristocracy" within the Republican camp is now precarious. Sharing this status with the nouveau riche of the cryptocurrency industry undoubtedly represents a long-term threat to traditional banks.
The most pressing concern for bankers currently is the regulation of stablecoins. The GENIUS Act explicitly prohibits stablecoin issuers from paying interest to purchasers. This compromise clause was originally intended to prevent stablecoins from siphoning off bank deposit demand, thereby weakening banks' lending capacity. However, a regulatory workaround has emerged in the market: stablecoin issuers, represented by Circle, the issuer of USDC, share the proceeds with cryptocurrency exchanges like Coinbase, which then distribute "rewards" to users who purchase stablecoins. Traditional banks are strongly demanding that this regulatory loophole be closed.
The interest issue is not the entirety of their disagreement. In other areas, cryptocurrency is also attempting to break through the barriers to entry in traditional finance. In October, Christopher Waller, a Federal Reserve Governor and candidate for Fed Chair, suggested that more institutions might be allowed access to the Federal Reserve's payment system, a statement that alarmed bankers. However, Waller later walked back these comments, stating that applicants for such Fed accounts would still need to hold a bank charter.
Finally, on December 12th, the cryptocurrency industry successfully pried open the door to the U.S. federal banking system. U.S. banking regulators approved applications for national bank trust charters from five digital finance companies, including Circle and Ripple. Although this qualification does not grant these institutions the authority to accept deposits or conduct lending businesses, it allows them to provide asset custody services nationwide without relying on state-level approvals. Previously, banks had lobbied regulators intensely against granting new charters to these companies.
Individually, each development—a speech, a bank charter, a certain regulatory workaround for stablecoin issuers—might seem insignificant. But taken together, these movements pose a serious threat to traditional banks. In fact, the core position of traditional banks in lending and brokerage has already been eroded by private credit institutions and new market makers outside the banking system. They are naturally reluctant to lose more ground.
Cryptocurrency firms argue that the preferential policies enjoyed by traditional banks create an unfair competitive environment and harm market competition. This argument may have its merits, but paying interest on stablecoins under the guise of "rewards" is undoubtedly a blatant attempt to circumvent regulation. The fact that lawmakers who voted to ban stablecoin interest payments just months ago are not stepping in to stop such behavior precisely reveals the real dilemma traditional banks face: their political influence has significantly declined.
Traditional banks are no longer the most influential financial force within the Republican camp. Instead, the cryptocurrency industry has firmly established itself within the American right's "anti-establishment, anti-elite" political faction. The industry's largest political action committee, armed with hundreds of millions of dollars, is ready to invest in the 2026 midterm elections, and money has always been a powerful weapon in political games. Now, when the interests of traditional banks conflict with those of the cryptocurrency nouveau riche, the outcome of the game is no longer a foregone conclusion, and may no longer even favor the traditional banks.
There was a time when bankers complained about the stringent regulations of the Biden administration. Ironically, however, they now find themselves relying on the support of a group of Democratic senators. These Democratic lawmakers are more concerned about the potential risks of stablecoins circumventing interest payments and the associated money laundering dangers. In opposing cryptocurrency firms obtaining bank charters, America's largest banks have even formed an alliance with labor unions and center-left think tanks. As in another saying never actually uttered by Gandhi: "The enemy of my enemy is my friend."
