Donald Trump's normalization of cryptocurrency, which netted him $1.2bn in 2024, poses a significant risk to the stability of the US economy. Despite earlier calling crypto a "scam," Trump embraced the industry after receiving substantial campaign contributions and launching his own crypto ventures, including World Liberty Financial and the $Trump memecoin. These moves have led to regulatory rollbacks and the passage of the Genius Act, integrating crypto into the formal banking system.
Trump's Financial Gains from Crypto
Trump's personal fortune grew by $2.2bn during his first year in office, with $1.2bn coming from the cryptocurrency industry. He launched World Liberty Financial, selling 49% to an investment firm tied to the United Arab Emirates for $500m, and issued the $Trump memecoin, which cost investors nearly $4bn but netted Trump over $600m. His administration nixed crypto enforcement at the Securities and Exchange Commission and reduced investigations into crypto-related money laundering.
The Genius Act and Stablecoin Integration
The Genius Act, passed with bipartisan support, allows banks and non-banks like Walmart to issue stablecoins pegged at $1. These stablecoins are not FDIC-insured and are currently used mainly for trading riskier crypto assets. Proponents argue they could enable cheaper real-time transactions, but critics warn of systemic risks. As of early June, there were 233 stablecoins on the market, with Mastercard, Citi, and JPMorgan entering the space.
Risks to Financial Stability
Economists Gary Gorton and Jeffery Zhang warn that waiting to see how stablecoins evolve would be a "terrible mistake." Stablecoins could draw money from commercial banks, reducing lending to the real economy, and their issuers may be tempted to invest in riskier assets. Barry Eichengreen notes that a panic-induced sell-off of treasurys by stablecoin issuers could collapse treasury prices and destabilize financial markets. Michael Bordo adds that new entities will find ways to evade regulation.
Alternative Solutions
A Federal Reserve-issued digital dollar, fully backed by the US government, could provide the benefits of crypto technology without the risks. However, this model would not offer Trump and his family the same opportunity for personal profit.
