Cryptocurrencies are having a moment. With Congress this week passing the Genius Act to regulate stablecoins, the door has now opened for institutional investors to rush into the crypto space. Accordingly, Bitcoin and other cryptocurrencies are soaring. This may not end well.

Since the turn of the millennium, the world economy has tripled in size. But the global money supply and stock market capitalization have each grown fivefold. This wasn’t accidental. After the dotcom crash and then the 2008 financial crisis, central banks adopted ultra-loose monetary stances and pumped far more money into the economy than its growth required. The reason given was that by lowering the cost of credit, they could stimulate investment and restart economies after the Great Recession.

That’s not how their many critics, on both the Left and the Right, saw things. In their view, this was nothing more than a thinly-veiled attempt to help bail out the bankers who caused the crash by inflating asset values through an age-old trick: currency debasement. As a sort of guerrilla assault on the system, Bitcoin was then born, created to hack this policy with a new form of money that, unlike that managed by central banks, had its supply fixed. That meant it could only rise in value.

Fast-forward to today, and Bitcoin is now worth nearly $120,000. It turned out to be the best investment early adopters could have ever made. Now Trump is rewarding them handsomely, with favorable policies and government patronage. His administration is also turning its attention to stablecoins — cryptocurrencies backed by assets like the US dollar, designed to be more reliable than purely digital tokens. The Genius Act (Guiding and Establishing National Innovation for US Stablecoins Act) brings these coins under regulatory oversight, enabling formal-sector institutions to trade in them legally and securely.

More than a mere payoff, though, Trump appears to see an opportunity to advance his own agenda. Specifically, he aims to undermine the Federal Reserve, whose monetary policy he wants to reverse. Because stablecoins are backed by US treasury paper, formalizing their use will encourage demand for bonds, which will help keep down interest rates. More broadly, regulations which allow crypto to be used as collateral for bank loans should boost the supply of credit, raising money supply even as the Fed tries to reduce it.

This boost in the money supply could turn into a bubble which eventually ends in a crash. Equally, it could produce the outcome that resulted from the Fed’s easy-money policy four years ago, a surge in inflation. Neither scenario ends well. Regardless, though, crypto will have made it to the inside — instead of exploiting currency debasement, it will henceforth help accelerate it. Although it will be a guaranteed path to riches until it isn’t, time may reveal its creation to have been one of the most effective guerrilla attacks ever — a sleeper cell planted in the financial system.

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John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a Religion (Simon & Schuster, 2017).

jarapley

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