A recent study indicates that 90% of community banks are seeing customer transactions with Coinbase. Over a 13-month period, for every dollar returning to banks, $2.77 flowed to the crypto exchange, resulting in a net deposit shift of $78.3 million. The analysis, which examined over 225,000 transactions across 92 banks, found that these outflows are heavily concentrated in money market accounts. If these patterns hold nationwide, it could impact over 3,500 community banks.
Smaller institutions, with under $1 billion in deposits, show higher relative exposure to these outflows. The study estimates that this net outflow could translate to approximately $30.5 million in reduced lending capacity for these banks, which are crucial for small business and agricultural lending.
This trend emerges amidst ongoing debates in Congress over the CLARITY Act, a proposed regulation for digital asset markets. A key point of contention is whether crypto exchanges should be allowed to offer yield on customer holdings, a practice that banking groups warn could accelerate deposit outflows and disrupt credit flows. Coinbase CEO Brian Armstrong has opposed restrictions, arguing it would eliminate stablecoin yield and protect banks from competition. Despite the disagreements, the CLARITY Act is expected to advance through Congress.