Dozens of executives from crypto firms, including Coinbase Global, Kraken, and Ripple Labs, on July 30 piled into the Indian Treaty Room in the Eisenhower Executive Office Building, an ornate former library adorned with French and Italian marble panels.
During President Joe Biden’s administration, many—if not most—of the companies represented had either been sued by securities regulators or were under investigation. Now, members of President Donald Trump’s cabinet and leadership team took turns extolling a newly released 160-page White House road map for embedding crypto into Americans’ everyday lives.
“It’s a pretty wild feeling to see so many people celebrating what this administration is doing, when 12 months ago the same individuals were in literal fear of these agencies,” said one crypto executive who attended the White House event. “We’re winning.”
The Trump administration’s about-face on crypto has led some mainstream financial institutions to embrace what was once a fringe investment. Banks that were all but prohibited by regulators from doing business with digital-asset firms are now being encouraged to dive in. Companies that securities regulators sued are now being courted to implant themselves into the systems Americans use to pay the mortgage or buy groceries.
The last time crypto suffered a major crash—leading to the failure of crypto exchange FTX in 2022—there was virtually no effect on the economy or wider financial system. The next time, that’s unlikely to be the case.
“All the guardrails are being removed at once,” says Lee Reiners, a fellow at the Duke Financial Economics Center. “There will be another downturn, and when it happens, the pain will be acute.”
Crypto prices have soared since Trump’s election. Bitcoin, the largest cryptocurrency, has risen 71% to $116,600, while Ether, the second-largest, is up 56%. The boost is also helping trading platforms like Coinbase, which is up 50% to $294 a share, and Robinhood Markets, which has more than tripled to $101.
The Trump administration’s regulatory shift has made some analysts ebullient. “As Bitcoin believers, this gives us goosebumps seeing how far the space has come,” wrote Cantor Fitzgerald analysts in July, pointing to a portion of the White House report.
Crypto’s power in Washington is new. Trump in his first term said crypto was “based on thin air,” and after leaving office in 2021 told Fox Business that it seemed “like a scam.” Those views changed abruptly in 2022, after Trump made millions of dollars off a type of crypto called nonfungible tokens. Those “Trump Digital Trading Cards,” which depicted the then-former president as a superhero, cowboy, and other characters, sold for $99 each. His family helped launch its own crypto businesses, including World Liberty Financial, which issues tokens and is creating a crypto borrowing and lending platform. The Trump Media and Technology Group, known by its ticker DJT, in August disclosed it owns $2 billion in Bitcoin and Bitcoin-tied securities. The Trump family is the company’s largest shareholder.
Industry executives promised Trump before the election that they could bring in millions of dollars in campaign donations, and Trump began to openly promote himself as the crypto president, making himself the first major-party nominee to take Bitcoin donations. The industry became one of the biggest spenders in the 2024 campaign, helping to elect not just Trump but also dozens of Republican and Democratic lawmakers who promised to push pro-industry regulations.
The payoff has far exceeded expectations. Trump’s Securities and Exchange Commission in the administration’s opening weeks dropped cases and investigations against Coinbase, Kraken, and Robinhood, among others, for allegedly violating securities laws, which the companies had denied. Perhaps most remarkably, the SEC in May tried to reverse an injunction and reduce a penalty it had already won in court against Ripple for selling unregistered securities. The judge in that case rejected the move.
But the Trump administration, with help from Congress, hasn’t simply pulled back on Biden-era prosecutions. It’s actively encouraging traditional financial institutions to become more involved in crypto.
In April, banking regulators withdrew guidance issued under Biden that essentially required banks to seek permission before embarking on crypto-related business, like custodying digital assets. They also encouraged banks to do more business with digital-asset firms, which had said they’d been unfairly shut out of basic banking services during the Biden administration.
Banks are moving quickly. Bank of America CEO Brian Moynihan and Citigroup CEO Jane Fraser on the company earnings calls in July said they’re considering launching “stablecoins,” a type of cryptocurrency pegged to the dollar. JPMorgan Chase CEO Jamie Dimon, who in the past has called Bitcoin a “Ponzi scheme,” said he wants his bank to be “a player.” Some banks have begun to offer loans to customers using Bitcoin exchange-traded funds as collateral.
The crypto push could get supercharged over the coming months. Trump in July signed into law a bill regulating stablecoins. The law requires the coins to be backed by safe assets such as Treasury bills, bank deposits, and money-market mutual funds.
One concern is that the law gives the go-ahead for stablecoins to be widely used in payments, even though their recent history suggests they may be riskier than other payment methods, says Amanda Fischer, who served as chief of staff for Biden SEC Chair Gary Gensler.
In 2023, the value of Circle Internet Group’s USDC, the biggest U.S.-based stablecoin, dropped as low as 88 cents on the dollar on crypto exchanges after the company revealed that much of its reserves were locked up in Silicon Valley Bank, which failed that spring. The Biden administration agreed to bail out uninsured depositors, and the token recovered.
The consequences could have been much more dire if Americans had widely used the coin for payments, says Fischer, who is now policy director at Better Markets, a group that advocates for tighter financial regulation. If someone had tried to use USDC to pay for groceries when it traded below $1, for example, the store would have had to decide whether to trust that they would eventually be able to redeem it at face value or to force the customer to take a haircut.
“If you run a local mom-and-pop convenience store, are you supposed to keep a currency conversion chart on the wall, depending on what stablecoin someone uses?” asks Fischer. If a stablecoin lost its value, “there would be tremendous pressure on the government to bail it out.”
If stablecoins became large enough and destabilized, a run could even put pressure on Treasuries, as investors raced to cash out, Fischer says.
Circle executives have said that though the price of USDC fell on exchanges during the 2023 episode, the company has never failed to redeem USDC for a dollar.
Some financial experts have made the argument that regulators’ attempts to discourage banks from doing business with digital-asset firms in itself caused the problem. After regulators’ warnings, only a handful of banks were willing to accept crypto business, concentrating risk and making them susceptible to failure when the industry collapsed.
The Trump administration has also begun to remove the Biden-era restraints keeping crypto out of many Americans’ retirement savings accounts. In 2022, the Labor Department issued guidance warning companies that it would have “serious concerns” about plans that offered investments tied to cryptocurrencies, suggesting it would breach companies’ fiduciary duty. Trump’s Labor Department rescinded that guidance in May.
The next month, Federal Housing Finance Agency Director Bill Pulte ordered mortgage giants Fannie Mae and Freddie Mac to study allowing crypto assets to count toward home borrowers’ assets without having to convert them into cash. A group of Democratic senators wrote Pulte a letter arguing the move “could pose risks to the stability of the housing market and the financial system.”
Though Fannie and Freddie consider other volatile assets, like stocks, in underwriting a mortgage, the senators argued that the cryptocurrency market’s historic volatility and relative illiquidity, compared with the stock market, made it less likely that a borrower could quickly convert to cash at a good price to stave off a default.
Some crypto skeptics say that the U.S. has seen such deregulatory pushes before, with dire consequences. In 2000, Congress passed the Commodity Futures Modernization Act. The law essentially prevented the Commodity Futures Trading Commission from overseeing over-the-counter derivatives, a move the White House supported to ensure that novel business remained in the U.S. Those derivatives, which included credit-default swaps, contributed significantly to the 2007-09 financial crisis.
“Crypto is sold as the future, but the policies backing it are in many ways taking us back to the past,” says Brookings Institution fellow Tonantzin Carmona. “We’re embedding something that is poorly understood into our financial system.”
The blockchain industry’s next target could be the stock market itself. The SEC says it’s exploring ways to allow companies to quickly begin offering “tokenized securities”—essentially stocks that trade 24 hours a day, seven days a week, on blockchains.
Kraken in May said it would begin offering tokenized stocks of companies including Apple, Tesla, and Nvidia to investors outside the U.S. Coinbase has said the SEC should offer regulatory relief, allowing it and other exchanges to offer tokenized securities quickly. In addition to round-the-clock trading, crypto executives say the tokens would reduce trading costs and enable faster settlement.
The request set off alarm bells at trade groups representing traditional finance firms, which said tokenized stocks could fragment the equities markets and circumvent securities rules that traditional players have to follow.
The Securities Industry and Financial Markets Association, a trade group including broker-dealers and investment managers, said the crypto firms’ moves raise “fundamental questions as to how investors would be protected” in a letter to the SEC this summer.
The Healthy Markets Association, a trade group including major investors such as the California Public Employees’ Retirement System, compared exempting tokenized securities from some regulations to the lack of rules for equity derivatives that helped lead to the collapse of family office Archegos Capital Management and to the “flash crash” in 2010, when the Dow Jones Industrial Average collapsed 9% within minutes before recovering.
“It is ludicrous to have highly complex rules regulating order submissions, trade increments, fees, reporting, and more in one set of financial products, and then create a parallel universe to trade economically equivalent financial products without those same sets of protections for the integrity and stability of the markets,” wrote Healthy Markets CEO Tyler Gellasch.
A Kraken spokesperson said the company supported the SEC’s efforts exploring tokenization.
Industry executives and other supporters say crypto’s risks to the financial system are overblown and that blockchain technology could bring Americans lower costs, greater convenience, and economic growth, as companies are encouraged to come to the U.S. rather than build in other countries.
Coinbase in submissions to the SEC has said tokenization could lower transaction costs, increase transparency, and reduce trade-execution risk.
“If you look at every financial crisis we’ve experienced in the U.S. in recent memory, it’s largely been caused by two things: leverage and opacity,” says Coinbase Chief Legal Officer Paul Grewal. “Crypto has nothing to do with either of those things.”
Grewal notes that past crypto crashes have seen the value of Bitcoin and Ether drop by more than 80%. “In each case, no government intervention was required. There was not a single bailout required by anybody,” he says.
The White House and some lawmakers also say that it is disingenuous to argue that putting in place crypto-specific regulations, where there previously had been none, will increase risks.
One White House official in an interview with Barron’s pointed to the stablecoin law. The official notes that issuers will now have to hold 1-to-1 backing, be subject to audits, and meet anti-money-laundering standards. “A lot of the tech in this space is going to undergird what the new financial system looks like,” the official says. “What’s the alternative? We just don’t put in protections for consumers?”
The Trump administration isn’t nearly done with its pro-crypto push. The 160-page plan released at the White House event said the Commodity Futures Trading Commission should consider guidance on how digital assets can be used as collateral for derivatives, and for the CFTC and SEC to consider regulatory sandboxes to let crypto firms test new products without being subject to the full weight of regulations. The day after the report’s release, SEC Chairman Paul Atkins said he’d launch an agencywide effort to “enable America’s financial markets to move on-chain.”
“If you’re tired of winning, hang in there, because we’re not done winning yet,” Treasury Secretary Scott Bessent told the crypto executives.
Write to Joe Light at joe.light@barrons.com
