Mike Novogratz, CEO of Galaxy Digital, has revealed that banks are the primary force blocking crypto market structure legislation. He stated that bipartisan support exists for the bill, but the influence of bank lobbying is the main obstacle.
Banks are concerned that stablecoins could attract deposits by offering yield, thereby weakening their profit margins derived from low-interest consumer savings accounts. The core of the conflict is not merely about regulatory jurisdiction but about who will control consumer money as stablecoins present a challenge to the traditional economics of bank deposits.
Lawmakers Align but Banks Push Back
Novogratz shared that he spent a significant portion of his time in Washington meeting with lawmakers. He observed that both Democratic and Republican senators are in favor of passing a crypto market structure bill. However, Novogratz noted that the negotiations are intricate due to the competing interests of various parties involved.
Despite the bipartisan alignment, the most substantial point of contention is not partisan disagreement. Instead, Novogratz indicated that pressure from major banks is the driving force behind the resistance. He explained that these banks have directly communicated their concerns to lawmakers, with their primary focus being on stablecoins and their potential impact on deposits and the availability of credit.
Stablecoins and the Deposit Yield Debate
According to Novogratz, traditional banks currently offer savers very low interest rates, typically ranging from one to eleven basis points on deposits. Concurrently, these banks earn a substantial return, approximately 3.5% to 4%, by holding these deposits at the Federal Reserve. This significant difference between what banks pay depositors and what they earn constitutes a crucial revenue stream for large financial institutions.
The emergence of stablecoins introduces a competitive element for these deposits. Novogratz expressed that banks are apprehensive that consumers might transfer their funds if stablecoins begin to offer competitive yields or rewards. Such a migration of funds would inevitably reduce bank profit margins or necessitate an increase in the interest rates offered to consumers on traditional deposit accounts.
Lobbying Pressure and Legislative Deadlock
Novogratz asserted that banks have engaged in a vigorous lobbying campaign in Washington. He characterized the banking lobby as highly organized and possessing considerable influence. According to his assessment, this intense pressure is the reason why the crypto market structure bill remains stalled, even with the presence of bipartisan interest.
While public discourse often centers on the division of authority between the SEC and the CFTC, Novogratz positioned this as a secondary issue. He argued that the fundamental conflict revolves around control over consumer money. If lawmakers grant stablecoins broader operational capabilities, banks will face more intense competition. Conversely, if this does not happen, the existing economic model for bank deposits will remain largely protected.