Say cryptocurrencies take off and people hold more of their savings in crypto instead of bank deposits. Currently everyone's savings is in bank accounts which is being lent out to businesses and hence stimulating the economy. What is going to happen if bank deposits drastically decrease?
On the one hand, maybe it will not have much effect on the economy because since lending will become tighter, businesses will need to justify the loans more (vs. if there is easy access to money) and will create stronger proposals. On the other hand, could it have a detrimental effect on the economy?
I think if the level of banks go down or as per your saying if people do not put any money into bank then obviously this will effect the economy in negative way. This is the reason government and financial institutions hate the black money thing where most of the economic strength goes down due to hidden money. This puts pressure on the central bank to print more fiat which demonetises the fiat value and thus leads to financial crisis. I think similar effect will happen if people start putting everything into crypto. This will lead crypto to catch up new market but Im sure before that could happen government will ban such deposits outside the bank if they are being done over the limits.