Written by Srinath Sridharan
Donald Trump is the savior of cryptocurrencies—conflicts of interest aside, he also has some assets in future crypto ventures. His newfound crypto cheerleaders are hilariously baffling. Just a few years ago, he dismissed cryptocurrencies as a “scam” and a “threat” to the dollar. This dramatic U-turn feels like a social media post hastily deleted after realizing its unintended consequences. Like a child hooked on a new toy, will this cryptocurrency lose its appeal once the next shiny object appears?
The irony here is rich. Born out of a dream of eliminating intermediaries and even government financial control, Bitcoin now finds itself embraced by the very intermediaries it was meant to circumvent. Wall Street, as the representative of the world’s finances, is wisely not satisfied with earning commissions on the sale of stocks, bonds, insurance, debt consolidation, and mutual funds. The company is now turning its focus (and political lobbying) to cryptocurrencies. At their core, cryptocurrencies remain the same high-stakes gambles that have no intrinsic value, do not generate cash flow, and are driven by retail psychology. Think of it this way. When you invest in a home, you are betting on its ability to provide housing and rental income. When you invest in stocks, you buy a portion of a company’s profits. But what exactly are you investing in when you buy cryptocurrencies? A future without banks? A utopia where everyone trades with blockchain tokens? Or is it simply an expectation that someone else will pay more than you?
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Financial regulators around the world have consistently warned of the risks. The decentralized nature and opacity of cryptocurrencies make them susceptible to illegal activities such as money laundering, terrorist financing, and tax evasion. However, President Trump has encouraged the industry to push for regulatory liberalization.
Consider the interconnectedness of global markets. At a time when Silicon Valley bank failures are sending ripples through European markets, adding unregulated crypto assets to the mix is like pouring kerosene on a smoldering fire. A single failure can trigger a domino effect across the global financial system, undermining trust and stability.
However, Trump’s return to power promises to accelerate the mainstreaming of cryptocurrencies. Emboldened by his support, industry lobbyists are pushing for regulatory relief that would make it easier for banks to incorporate cryptocurrencies into their services. This is not about innovation or financial inclusion. It creates fertile ground for profiteering regardless of the collateral damage.
Deregulation of cryptocurrencies in the United States threatens to undo years of progress in banking regulation. Cryptocurrency lobbyists are calling for the reversal of key guidelines, including rules that impose costs on banks to provide crypto custody services and require stricter accounting measures for digital assets. Dismantling these safety devices may provide a smoother ride in the short term, but at the cost of a catastrophic crash.
There is no greater risk to global banking regulatory standards. If President Trump’s crypto policies take off, frameworks like Basel III designed to ensure bank resilience will be put under stress tests like never before. Extreme price fluctuations in cryptocurrencies, combined with their speculative nature, can wreak havoc on banks’ capital buffers and liquidity ratios. Consolidation of such assets without robust global standards risks creating regulatory arbitrage, with bad actors flocking to jurisdictions with the weakest rules.
Adding to the circus is David Sachs, President Trump’s newly anointed “crypto AI czar.” Sachs, who has spent his career criticizing technology regulation, seems an odd choice given his lack of expertise in cryptocurrencies or artificial intelligence. Again, Mr. Trump has never been one to let qualifications get in the way of an appointment.
Fifteen years after its creation, cryptocurrencies still struggle to justify their place in the world. It has no social purpose, no economic value, and no track record of improving lives. The industry’s relentless marketing machine spins stories of overnight millionaires and uses the “fear of missing out” to lure unsuspecting retail investors. Meanwhile, the financial sector collects fees by selling crypto products that are nothing more than sophisticated gambling tokens. If this house in the sand were to collapse, the aftermath could dwarf the global financial crisis. And, as always, ordinary citizens will bear the brunt.
Regulators must hold their ground, resist calls for deregulation, and ensure that the integration of cryptocurrencies into the financial system is guided by prudence rather than populism. In the words of the Financial Stability Board, “No regulation is not neutrality; it is a license for instability.” Fortunately, the Reserve Bank of India continues to hold firm on its position on cryptocurrencies. . But can the political system respond to President Trump’s crypto tantrums, for example through non-financial regulatory frameworks?
The current story of cryptocurrencies is almost Dostoyevskian in its absurdity, a story of human greed and moral bankruptcy disguised as innovation. But unlike Dostoyevsky’s characters who grapple with guilt and redemption, the crypto industry and its political champions seem to lack it altogether. If President Trump’s cryptocurrency flip-flops tell us anything, it’s this. When opportunism and populism collide, the result is a spectacle – entertaining, yes, but dangerously divorced from reality. And as history has shown, such spectacles rarely end well.
The author is a corporate advisor and an independent director on a corporate board.
Disclaimer: The views expressed are personal and do not reflect the official position or policy of FinancialExpress.com. Reproduction of this content without permission is prohibited.
