The Influence of Cryptocurrency Adoption on the Profitability and Stability of Traditional Banking Institutions: An Empirical Analysis

Abstract

The rise of digital currencies has introduced significant challenges and opportunities for the traditional banking sector. This study investigates how cryptocurrency adoption influences the profitability and stability of banks in China, with a focus on the moderating role of government regulation. It examines the effects of both decentralized cryptocurrencies (e.g., Bitcoin, Ethereum) and the Digital Yuan (e-CNY), China's Central Bank Digital Currency (CBDC), on key banking functions. Using a quantitative approach, data was collected through structured surveys and financial records, and analyzed using descriptive statistics, correlation analysis, multiple regression, and moderation techniques. The results show that while decentralized cryptocurrency adoption negatively affects bank profitability, CBDC usage strengthens financial stability by aligning with regulatory structures. Moreover, strong regulatory policies appear to buffer the negative financial effects of crypto adoption. These findings offer practical insights for banking institutions adapting to digital finance, and contribute to academic understanding of how innovation and regulation intersect in transforming financial systems.