The great crypto reckoning: Wake up and get real about this class of pseudo assets

As promised, Trump did gut most crypto regulations. He also signed the Guiding and Establishing National Innovation for US Stable Coins (Genius) Act, pushed for the Digital Asset Market Clarity Act, profited personally from shady domestic and foreign crypto deals, promoted his own meme coin, pardoned crypto crooks who had allegedly aided terror organizations and hosted private dinners for crypto insiders at the White House.

Moreover, crypto was supposed to benefit from various macro and geopolitical risks, such as the ballooning of US and other advanced economies’ debt and deficits, the debasement of the dollar and other fiat currencies, new trade wars and growing tensions between the US and Iran, China and others. Indeed, the heightened risk environment helps explain why gold rose by over 60% in 2025.

But ‘digital gold’ fell by 6% in 2025. As of now, Bitcoin is down 35% from its October peak, below where it was when Trump was elected, and the $Trump and $Melania meme coins are down 95%. Every time gold has spiked in response to trade or geopolitical ructions over the past year, Bitcoin has fallen sharply. Far from being a hedge, it is a way to leverage risk, showing a strong correlation with other risky assets like speculative stocks.

Calling Bitcoin or any other crypto vehicle a ‘currency’ has always been bogus. It is neither a unit of account, a scalable means of payment, nor a stable store of value. Even though El Salvador made Bitcoin legal tender, it accounts for less than 5% of transactions for goods and services. Crypto is not even an asset, as it has no income stream, function or real-world use (unlike gold and silver).

Seventeen years after Bitcoin’s launch, the one and only crypto ‘killer app’ is the stablecoin: a digital version of old-fashioned fiat money. Yes, whether digital money and financial services should be on a blockchain (distributed ledger) or a traditional double-ledger platform remains a question.

But 95% of ‘blockchain’ monies and digital services are blockchain in name only. They are private rather than public, centralized rather than decentralized, permissioned rather than permissionless and validated by a small group of trusted authenticators (as in traditional digital finance and banking) rather than by decentralized agents in jurisdictions with no rule of law.

True decentralized finance will never reach scale. No serious government will allow full anonymity of monetary and financial transactions as that would be a boon for criminals, terrorists, rogue states, non-state actors, human traffickers, crooks and tax dodgers.

Moreover, because digital wallets and regulated exchanges must be subjected to standard anti-money laundering and know-your-customer rules, it is not even clear that transaction costs through permissioned and private ‘blockchains’ are any lower, especially now that traditional financial ledgers have improved with real-time settlement and faster clearing tools.

The future of money and payments will feature gradual evolution, not the revolution that crypto-grifters promised. Bitcoin and other cryptos’ latest plunge further underscores the highly volatile nature of this pseudo-asset class.

As for the Genius Act, having set the stage for another destructive experiment in free banking, like the one that ended in tears during the 19th century, it may well be remembered as the Reckless Act. Under the law, stablecoins are not regulated as narrow banks (for payments and deposits rather than riskier lending and investing), nor do they have access to the lender-of-last-resort or deposit-insurance benefits provided by central banks.

All it would take to incite a panic and trigger a bank run is for a few bad apples to misinvest their holdings or place their deposits in weak institutions. As in the 19th century, the current US approach is a recipe for instability.

The recent fight between real banks and the crypto industry over the Clarity Act is revealing. The issue is not about banks wanting to keep their near-monopoly on monetary transactions. In a fractional reserve banking system, banks are involved in both payments and credit creation via the transformation of short-term deposits into longer-term loans and credit. They provide a valuable semi-public good.

Short-term deposits don’t pay interest because they are nearly equivalent to currency. Yet the crypto industry wants interest payments allowed for stablecoins—directly or indirectly via exchanges—which would undermine the banking system. So, we must either radically change our financial system to separate payments from credit creation (via narrow banks for payments and loanable funds from financial institutions for credit), or prohibit stablecoins from paying interest and disintermediating banks.

This is a serious political and financial stability issue. Jamie Dimon, CEO of JPMorgan Chase, is rightly raising the alarm over what the crypto industry wants and Brian Armstrong of Coinbase is wrong in dismissing such concerns.

Trump’s advisors should explain to him how the banking system works before serious damage is done. Treasury Secretary Scott Bessent, are you listening? ©2025/Project Syndicate

The author is professor emeritus of economics at New York University’s Stern School of Business and author of ‘MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them’