Crypto Wins in Congress Could Cause Financial Chaos
Last week, President Donald Trump made dubious history when he signed legislation that gave a rubber stamp to companies — including some owned by his family — to issue their own digital currencies known as stablecoins. Never before has a president signed a bill that legalized his own hustle.
Not only does this legislation enrich Trump and his crypto cronies, it will expose cryptocurrency investors and the financial system to tremendous risks — like the 2022 crypto crash that reached its peak with the collapse of the fraudulent crypto exchange FTX, but on a more massive scale.
The crypto industry poured hundreds of millions of real dollars into politics to get this bill passed and to advance another. After sending the stablecoin bill, known as the GENIUS Act, to the president’s desk, the House of Representatives also sent another dumpster fire of a crypto bill, the CLARITY Act, over to the Senate. This legislation would enact a light-touch regulatory framework for crypto tokens and markets.
The crypto industry and its vassals in Congress are taking a victory lap. But the rest of us could soon be on the hook for a pair of giveaway bills that will make the industry richer at everyone else’s expense.
Stablecoins, despite their name, are a not-so-stable form of crypto that have a price pegged to the dollar and are backed by a reserve of cash (or other relatively stable assets like Treasury notes). They are almost exclusively used to fuel billions in crypto speculation — but if they ever became part of everyday finance, like buying a loaf of bread, their issuers would stand to make trillions, profiting each time we head to the checkout counter. You can’t spend stablecoins at the bodega just yet (or maybe ever), but Congress and Trump have made sure that the rules are already rigged for the issuers because the so-called GENIUS Act has almost no meaningful protections for people that hold stablecoins or to prevent criminal money laundering or to safeguard your bank from crypto risks.
And Trump is appointing industry foxes to oversee the crypto henhouses (in this analogy, we are the chickens destined for the pot). Trump regulators have already dismissed crypto enforcement cases, shut down an anti-crypto fraud unit at the Justice Department, rolled back consumer protections, and cleared the way for the worst crypto actors to fleece unsuspecting customers and bamboozle banks and investment firms. Trump’s regulatory buzzsaw means that new or expanded stablecoin offerings could be on the market in the middle of next year.
Still, these firms face a big hurdle: Right now, most people in the U.S. don’t use — or frankly even need — stablecoins. Cue the marketing and promotional onslaught. Like carnival barkers, stablecoin issuers and their partners will flood the interwebs with advertisements, promotions, and deals. Crypto firms will offer deals, rewards, and high interest rate return come-ons to entice people to park their stablecoins in their platform’s crypto wallets. Already, disgraced crypto platform Binance, which recently received a $2 billion infusion of funding via Trump’s USD1 stablecoin, is now offering generous financial incentives to use USD1 on its platform.
Much of this is likely to end badly. New wallet users will be hacked. Stablecoin issuers and platforms will give people the runaround when they try to retrieve lost or stolen funds. They will impose surprise charges and junk fees. And despite promises of high-speed transactions, users could face long wait times, outages, or frozen accounts. And people will be vulnerable to the whims of the crypto markets’ fraud, failures, and faulty products.
But the biggest problems will come at scale. If people flock to stablecoins, bank deposits could dry up, creating credit crunches for small-time lenders and borrowers. And widespread speculation in stablecoins could ignite bank-style runs on stablecoins if people think their value is collapsing. But stablecoin users, who don’t get the same protections as bank customers, won’t have deposit insurance to protect them. And, when one of these stablecoins fails, federal regulators may bail out the issuers, but not necessarily the holders.
And the GENIUS Act lets companies like Amazon, Walmart, or X issue their own stablecoins with scant oversight. These dominant retailers already have significant control over what you can buy; with their own stablecoin they could shape what you buy it with, orchestrating transactions to push you to use their coin, while collecting even more data about you and your transactions. And, if they go belly up because of a supply chain crisis, the stablecoins in your wallet might evaporate too.
The other congressional giveaway to crypto billionaires on the docket is the so-called CLARITY Act, a bill that pretends to be new regulations for crypto but is actually just a smorgasbord of carve-outs and freebies for the industry. These deregulatory measures don’t just provide crypto investors with less protection than regular investors; they leave whole parts of the industry virtually unregulated and contain loopholes that could undermine financial protections for the rest of our financial system. As Rep. Maxine Waters (D-Calif.) said, the bill promises more calamity than calm.
For example, the bill lets firms fast-track the registration of new crypto tokens with a weak, underfunded regulator: the Commodities Futures Trading Commission, which flubbed the oversight of financial derivatives contributing to the 2008 financial crisis. Once registered, they could sell riskier assets to more people with less oversight, less information, and less protection for investors. The CFTC has a role to play in financial regulation, but saddling it with a huge new responsibility, and without the real regulatory tools and resources needed to protect consumers, seems like a strategy intended to fail. As such, the oversight this bill offers is about as real as the coins being sold.
What’s more, other big chunks of the crypto industry are given a free pass in this bill. Decentralized Finance (DeFi) crypto trading platforms — including Trump’s affiliated platform World Liberty Financial — are largely exempt from oversight. This is like exempting the New York Stock Exchange from oversight, but if that exchange was poorly operated and replete with hacks, scams, and bugs.
Some of the sketchiest crypto, such as NFTs and meme coins — including the president’s meme coin — are also largely exempt from any regulatory oversight. These coins are some of the scammiest crypto products out there — ask the more than 750,000 people who lost money on Trump’s meme coin — but somehow this bill doesn’t touch them.The guiding principle is not consumer protection, but buyer beware. And beware because you are on your own if you get scammed or ripped off.
The bill’s biggest threat are the loopholes it crams into financial market laws that were constructed after the Great Depression to protect investors and safeguard the tens of trillions of dollars sloshing around in our pension funds and retirement savings accounts. These New Deal-era laws prevented hucksters from pushing phony investments. And they were made flexible enough so that future regulators could examine the facts and circumstances of different financial products to determine whether an offering walked and quacked like a securities investment duck and warranted investor protections.
But Big Crypto wants none of that. The industry is offering a t-shirt gun of zany crypto offerings and they don’t want the Securities and Exchange Commission to be able to determine independently if any of these offerings is effectively like a stock or a bond. Instead, with CLARITY, they’ve rewritten the rules so that the existing laws for these investments apply to them only when it’s convenient for crypto — which is to say rarely.
In doing so, they would upend nearly a century of investor protection law. For example, this lets crypto firms more easily sell tokens to privileged insiders with investor-like rights, then resell them as mere commodities to retail investors — you trading crypto on some app — with virtually no protections. This lets firms raise a lot more capital, quickly, from more people, with fewer questions asked even when they are selling riskier assets. Wall Street will see these loopholes as an invitation and attempt to take their boring old blue-chip stock and “slap a blockchain on it,” and either evade existing rules or litigate to demand that their existing products should get similar treatment. And voila! A race to the deregulatory bottom. Fewer pesky requirements and more investors to raise money from, regardless of the risk.
The crypto industry claims this will lead to capitalist nirvana — oodles of innovative investment opportunities for everyone, everywhere! But we’ve already seen where this leads. The 1990s era of financial deregulation that was promoted to foster financial innovation directly led to the 2008 financial crisis when unregulated financial instruments capsized the financial system and wiped out some of the county’s biggest banks. The CLARITY and GENIUS acts are the same types of deregulatory fools gold, and are likely to set the stage for similar financial crises to come.
That would mean rampant speculation, bigger and more frequent market swings, and a flood of risky crypto products. New unscrupulous firms will use savvy marketing to entice new customers into taking on more investment risks, while more established players will jump into the market lest they miss out. All this will lead to more market chaos and uncertainty, which will ultimately hurt average households the most — both when their own investments disappear and when the markets ultimately crash.
Trump may be the biggest winner here. He stands to grab profits and power from passage of these bills. Trump appointed regulators can effectively position the Trump stablecoin as a cornerstone of the U.S. crypto industry. If the Senate passes the CLARITY Act, his preposterous meme coin — which has already garnered his family hundreds of millions of dollars in fees even as most investors lost money, and the Trump-affiliated World Liberty Financial platform — would be largely exempt from any regulatory oversight. Trump’s crypto wealth surged more than a billion dollars in less than a year; passage of these bills could generate billions more for Trump and his family.
It’s time for Congress to put a stop to this madness. Trump has already signed the stablecoin bill, but the CLARITY Act still goes to the Senate after Labor Day. The Senate needs to stand up to the gusher of crypto cash and block this giveaway that literally enriches Trump and the crypto broligarchy while imperiling the rest of us, the financial system, and the real economy.