Donald Trump's personal wealth surged by $2.2 billion during his first year back in office, with crypto deals accounting for roughly half that windfall. The arrangement has drawn sharp criticism from economists who warn that the president's aggressive push to integrate cryptocurrency into America's banking system could create dangerous financial instability.
The most controversial piece came from Trump's own crypto ventures. He launched World Liberty Financial and sold a 49 percent stake to an investment firm tied to the United Arab Emirates for $500 million. His memecoin, $Trump, attracted nearly $4 billion from retail investors but netted him over $600 million personally. The timing of his pivot from calling crypto a "scam" to becoming its cheerleader closely followed major industry contributions to his campaign.
Once in office, Trump moved swiftly to reshape the regulatory environment. He dismantled the SEC's crypto-enforcement program, halting investigations and lawsuits. The Department of Justice announced it would dial back prosecutions of money laundering involving crypto platforms. Congress, with backing from both parties and a push from the White House, passed the Genius Act, which wedded cryptocurrency to the mainstream banking system.
The legislative shift opened the door for banks, non-banks, and retailers like Walmart to issue their own stablecoins, a cryptocurrency pegged at one dollar. Unlike traditional bank accounts, stablecoin holdings carry no FDIC insurance. Proponents argue the technology offers faster and cheaper international money transfers on a decentralized ledger. The financial industry has rushed in: as of early June, 233 stablecoins were trading. Mastercard, Citigroup, and JPMorgan have all launched crypto initiatives to avoid losing ground to new competitors.
Trump is now pushing for passage of the Clarity Act, which would provide light-touch regulation for crypto businesses to issue and support trading in riskier assets like bitcoin.
The systemic risk question
Prominent economists are sounding alarms. Yale's Gary Gorton and Jeffery Zhang from the University of Michigan warned that waiting to see how stablecoins play out would be "a terrible mistake." They point to a structure that mirrors the shadow banking system that helped trigger the 2008 financial crisis.
As stablecoins become embedded in the financial ecosystem, they will draw deposits from somewhere. Some may come from foreign holders of dollar assets, but inevitably from commercial banks. That could weaken lending to the real economy even as it creates demand for Treasury bonds.
The danger deepens with fragmentation. Hundreds of private stablecoins, each with its own risk profile, will compete for business. Regulators require issuers to hold only the safest assets to guarantee the dollar peg, but history suggests many will bend those rules and buy riskier, higher-yielding investments instead. Michael Bordo, a Rutgers economist, noted that new entities constantly find ways to operate outside the regulatory net.
Barry Eichengreen from UC Berkeley laid out the collapse scenario: if panicked customers force stablecoin issuers to liquidate holdings, Treasury prices could plummet, sending interest rates soaring and destabilizing the broader financial system.
One alternative exists. The Federal Reserve could issue a digital dollar, fully backed by the nation's creditworthiness, preserving the technology benefits without the systemic risk. Such a move would deliver the same efficiency gains to the economy without requiring private entities to warehouse trillions in assets outside the traditional safety net.
The catch is obvious: a government-issued digital currency would not funnel billions into Trump's personal accounts or those of his allies in the crypto industry.
Author James Rodriguez: "We've seen this movie before, and it ended badly. The only difference this time is we're writing the script in real time while the industry profits on the side."
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