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Remember when cryptocurrencies were heavily regulated, unnecessarily scrutinized by authorities, heavily regulated crypto platforms collapsed one after another, and the entire market crashed in spectacular fashion? ?
Yeah, me too. After all, that didn't happen at all, right? The last time the crypto market crashed in 2021-2022 was not because the industry was tightly controlled by regulators, but the opposite. Because of the lack of regulatory oversight in the so-called “crypto space,” the barons of cryptoland believed they had the right to play with other people’s money as if they were playing Monopoly.
Huge gaps in rules regarding risk-taking, leverage, and transparency were exploited and ultimately turned the market against them, leading to the collapse of so many crypto projects. And the lack of consumer protection, and understanding of the risks involved, caused so many retail investors to lose their lifetime savings (of course, most crypto tycoons were safe, because they It was smarter than putting all his money into virtual currencies.)
But what is needed is less regulation, and the idea that cryptocurrencies are being treated unfairly and should simply be accepted as a harmless part of the financial system is now being actively supported by the crypto industry and its industry. This is something that is being promoted. Acolyte.
“Delete the CFPB. There are too many duplicate regulatory agencies,” Elon Musk (a man in such pain online that he considers “deleting” government agencies) wrote on his X Platform on Wednesday. Ta. Musk was referring to the Consumer Financial Protection Bureau, a U.S. watchdog agency that seeks to protect Americans from the kind of predatory practices that led to the last cryptocurrency collapse.
Unsurprisingly, the world of cryptocurrencies has been on a high since Donald Trump's election victory, with Trump once denouncing the industry as a “fraud,” but then calling himself the “crypto president.” , promised to make America the “greatest nation.” “Earth’s Cryptoassets”. Cryptocurrency prices soared on hopes that Trump might win, and rose even further as it became clear he had won. Bitcoin has risen by about two-fifths since the election, hitting a new all-time high of just under $100,000. The estimated market value of all cryptocurrencies (a dubious metric, but the only one available) has increased by more than $1 trillion.
Meanwhile, Dogecoin, Mr. Musk's favorite “meme coin,” has surpassed Bitcoin in terms of profits, rising 150% since the election. why? That's because Doge is an acronym for the new “Department of Government Efficiency,” which Musk will lead. Is it really just lighthearted or very dark? I think it depends on your sense of humor.
Trump appears intent on keeping his promise to the crypto rand, and the more than $100 million the crypto lobby spent on the US election, which accounted for nearly half of all corporate spending, appears to be paying off in spades. . Last week, it was reported that President Trump is consulting with the cryptocurrency industry to decide who should be the next chairman of the Securities and Exchange Commission. (Current chairman Gary Gensler, a critic of cryptocurrencies, said he would resign before the 45-year-old turns 47, after President Trump said at a Bitcoin conference that he would fire him on his first day in office.) )
Aside from the significant backing he has been given by the crypto industry's billionaires, Trump also has personal financial interests in cryptocurrencies, including his sons' venture, World Liberty Financial.
None of this makes us believe in President Trump's fervent determination to keep his word. But that should worry us. Until now, I have avoided talking about virtual currencies as a “systemic risk.” That's because cryptocurrencies were relatively small and isolated from the rest of the financial system. But that is changing. Following the SEC's approval of a Bitcoin exchange-traded fund earlier this year, cryptocurrencies have become more closely connected to the rest of the financial system. And the numbers are huge: BlackRock's recently launched Bitcoin ETF has already attracted a staggering $48 billion.
Martin Walker, emeritus research fellow at Warwick Business School, worries that regulators won't be able to keep up. “One thing history tells us about financial crises is that risks always accumulate and explode in areas that regulators don't think they expect,” he told me. “Flaws in the financial system are not always obvious…Crypto finance is now so large that there are certainly macro risks…It is both dangerous and poorly understood. yeah.”
Ironically, the people pushing for crypto deregulation are the ones most likely to cause its next collapse. But next time, it may not be just cryptocurrencies that get burned.
jemima.kelly@ft.com
