Bitwise CIO: Traditional Financial Institution (TradFi) Stablecoins Face Hurdles in Gaining Market Share

The growing interest in stablecoins issued by traditional financial institutions (TradFi) may face significant barriers to widespread market adoption, according to Matt Hougan, Chief Investment Officer at Bitwise Asset Management. In a recent post on X (formerly Twitter), Hougan asserted that these new stablecoins will struggle to capture substantial market share.

“TradFi stablecoins will find it harder than they think to win market share,” Hougan remarked on February 26, 2025. His comments come in response to news from Bank of America (BofA) regarding its stablecoin plans, which sparked mixed reactions from the crypto community.

Bank of America’s Stablecoin Announcement

On February 25, Bank of America’s CEO, Brian Moynihan, revealed that the bank was considering launching its own U.S. dollar-pegged stablecoin, pending the development of relevant regulatory guidelines. The announcement came on the heels of remarks from Jeremy Allaire, co-founder of Circle — the issuer of USDC, the second-largest stablecoin by market capitalization — who emphasized that all USD stablecoin issuers should be registered in the U.S.

This news triggered a range of reactions from the crypto space, with some viewing it as a step toward mainstream crypto adoption, while others expressed concerns that bank-issued stablecoins could pave the way for a new form of central bank digital currencies (CBDCs).

Stablecoins or CBDCs?

The announcement of BofA's potential stablecoin drew criticism from some quarters, with critics arguing that it could essentially be a rebranded CBDC. One X user commented, “So are they going to just ‘rebrand’ CBDCs and call them ‘stablecoins’?” Another observer echoed these concerns, stating that it sounded “CBDCish.”

However, not all commentators shared this view. Some pointed out the fundamental difference between a CBDC and a traditional stablecoin. Digital asset researcher Anderson clarified, “A CBDC is a direct liability of the central bank, while a stablecoin is a liability of the issuer. This distinction has significant consequences.”

The debate surrounding whether stablecoins issued by banks could resemble a form of CBDC reflects broader concerns about the future of the U.S. dollar and digital currencies. Notably, the U.S. government has made moves to support the dollar's dominance in the global financial system, as seen in President Donald Trump’s January 23 executive order aimed at promoting the development of dollar-backed stablecoins, while explicitly prohibiting the creation of CBDCs in the U.S.

Concerns Over the Future of Tether

Amid the increasing discussion around TradFi stablecoins, some members of the crypto community voiced concerns about the potential implications for Tether (USDT), the largest stablecoin by market capitalization. There is speculation that Tether could face legal challenges or be treated differently from other U.S.-based stablecoin issuers, particularly as new legislation on stablecoins takes shape in the U.S.

One X commentator wrote, “So Tether will likely be outlawed or treated differently compared to other U.S. stablecoins. They are lobbying for this.” In response to these concerns, Tether CEO Paolo Ardoino expressed unease about the evolving regulatory landscape for stablecoins in the U.S. On February 26, he described the situation as “very troubling” in a tweet responding to Rumble CEO Chris Pavlovski’s concerns.

Pavlovski suggested that the new draft legislation could negatively impact Bitcoin prices and hurt confidence in the broader crypto market. He also argued that the legislation appeared designed to suppress competition in the stablecoin market.

Tether’s Position and Global Focus

While concerns about the regulatory treatment of Tether in the U.S. persist, Ardoino has previously emphasized that Tether does not seek to compete with U.S. or European stablecoin issuers. Rather, he noted that the company’s primary focus is on regions where demand for stablecoins is high, such as in developing countries like Argentina, Turkey, and Vietnam.

In an interview with Cointelegraph, Ardoino stated, “Our focus has to be where we are needed the most,” underscoring Tether's role in providing financial solutions to regions facing significant economic challenges.

Conclusion: The Future of Stablecoins

As traditional financial institutions begin exploring the launch of stablecoins, the crypto community remains divided on the implications. While some view BofA’s announcement as a step toward broader crypto adoption, others are wary of the potential for these stablecoins to resemble CBDCs, limiting decentralization and financial freedom. Furthermore, the growing regulatory scrutiny surrounding stablecoins, particularly Tether, has raised concerns about competition and the future of decentralized digital currencies.

It remains to be seen how TradFi-backed stablecoins will coexist with the existing decentralized options in the market, but it is clear that the battle for dominance in the stablecoin sector is intensifying. With increasing regulatory attention, stablecoins are likely to play a pivotal role in shaping the future of digital finance.