Coinbase Warns US Risks Losing Digital Finance Race to China on Stablecoin Policy

VADODARA, December 31, 2025 — Coinbase has issued a stark warning that the United States risks falling behind China in the global digital finance competition if it prohibits or limits interest payments on stablecoins, according to a report by The Block. This latest crypto news comes as market sentiment hits extreme fear levels, with Bitcoin trading at $88,408, down 1.41% in 24 hours, highlighting the regulatory uncertainty's impact on price action.

Market Context & Background

Market structure suggests this regulatory debate mirrors the 2021 correction when unclear US crypto policies triggered a 50% drawdown in Bitcoin's price. Similar to how the SEC's delayed approval of spot Bitcoin ETFs created a liquidity vacuum that China's digital yuan initiatives exploited, current US hesitation on stablecoin interest payments represents another potential order block for American financial dominance. Historical patterns indicate that regulatory clarity typically precedes institutional capital inflows, as seen with the recent Bitcoin ETF inflows breaking a 7-day outflow streak. The People's Bank of China's guidelines permitting interest payments on CBDC wallets, announced earlier this year, created a fair value gap that US policymakers must now address to maintain competitiveness.

What Happened?

On December 31, 2025, Coinbase Chief Policy Officer Faryar Shirzad stated that China's decision to allow interest payments on its central bank digital currency signals the beginning of a global digital money race. In a statement to investors, Shirzad emphasized that the US can no longer delay a decision on allowing stablecoin interest payments, cautioning that if the issue is neglected during Senate negotiations on the market structure bill (CLARITY Act), the country risks losing its global competitiveness. According to on-chain data, this warning coincides with extreme market conditions, where the Global Crypto Fear & Greed Index sits at 21/100, indicating capitulation-level sentiment similar to March 2020's COVID crash.

Technical Analysis & Price Action

Bitcoin's current price of $88,408 represents a critical test of the 50-day moving average at $85,000, which has served as dynamic support since the 2024 halving. The RSI reading of 38 suggests oversold conditions, potentially creating a liquidity grab opportunity for institutional buyers. Market analysts note that Fibonacci support at $82,000 (the 0.618 retracement from the 2024 low to the 2025 high) must hold to prevent a deeper correction. The volume profile shows increased selling pressure around $90,000, indicating this level now acts as resistance. Bullish invalidation occurs if Bitcoin breaks below $82,000, while bearish invalidation requires a close above $95,000 to confirm trend reversal.

By The Numbers

Why It Matters

For institutions, this policy debate represents a fundamental shift in how digital assets are valued. If the US prohibits stablecoin interest payments while China's digital yuan offers yield, capital could flow eastward, creating a gamma squeeze in Asian markets as seen during the 2023 Hong Kong crypto licensing rush. Retail investors face increased volatility, as regulatory uncertainty typically correlates with higher implied volatility in options markets, similar to the 2022 FTX collapse period. The Federal Reserve's potential response to digital currency competition could influence interest rate decisions, adding another layer to macroeconomic analysis.

Community Sentiment

Market analysts on X/Twitter express concern that "the US is repeating the same mistakes with digital assets that it made with semiconductor manufacturing." Another prominent trader noted, "China's CBDC yield advantage creates an arbitrage opportunity that could drain liquidity from US dollar-pegged stablecoins." These sentiments align with the extreme fear reading in market data, suggesting traders are pricing in regulatory headwinds.

Price Prediction / Future Outlook

Bullish Case: If the US Senate incorporates stablecoin interest provisions into the CLARITY Act, market structure suggests a rapid re-rating of digital asset valuations. Technical analysis indicates Bitcoin could reclaim $100,000 within 30 days, with stablecoin market capitalization growing 25% as institutional capital enters yield-seeking positions. This scenario mirrors the 2024 post-ETF approval rally where clarity triggered $15 billion in inflows.

Bearish Case: If the US prohibits stablecoin interest payments while China expands its digital yuan program, on-chain data indicates capital flight from US-regulated exchanges. Bitcoin could test the $75,000 support level, representing a 15% decline from current prices, similar to the 2021 China mining ban impact. Stablecoin dominance would decrease as traders seek yield in offshore instruments.

FAQs

• What are stablecoin interest payments? These are yield-generating mechanisms where stablecoin holders earn interest, similar to traditional savings accounts but in digital currency format.
• Why does China allowing CBDC interest payments matter? It creates competitive pressure on dollar-pegged stablecoins, potentially attracting global capital to China's digital financial system.
• How does this affect Bitcoin's price? Regulatory uncertainty typically increases volatility and correlates with negative price action in the short term, as seen in current market data.
• What is the CLARITY Act? Proposed US legislation that would establish regulatory frameworks for digital assets, including stablecoins and market structure.
• Can the US catch up if it falls behind? Historical precedents like the EU's MiCA regulations suggest recovery is possible but requires rapid, coordinated policy action across multiple agencies.

Data source: Read Original Report

Source Note: Market data and factual reporting in this article are sourced from original reports. Commentary and analysis provided by CoinMarketBuzz.