Trump's Crypto U-Turn: 5 Reasons Banks Are Betting Big Now

As FTX, Celsius, BlockFi and others have shown, the crypto landscape is changing dramatically, no longer revolving solely around Bitcoin’s price. Banks, those once unassailable behemoths of legacy finance, are making bigger forays into the digital asset space. You’d be forgiven for assuming that pursuing profits in a strengthening market is easy. Unfortunately, the truth is less straightforward and more frightening. Advocates argue that it’s Trump-era anti-regulatory policies that are innovation. Now, what if instead, they’re actually just conditioning us to accept a future bailout of our banks?

Regulatory Calm: A Siren Song?

The perceived relaxation of regulations that would come with a possible Trump administration is the shiny bauble drawing in these banks. Dissolving of the National Cryptocurrency Enforcement Team (NCET) and SEC dropping its lawsuit against Coinbase? To the average observer, it sounds like a huge “green light” for crypto growth. Don’t we need to be looking deeper at why these decisions were made, and who benefited?

Think of it like this: imagine you're a bank executive. The regulatory heat is dialed down. The risk-reward calculus just changed dramatically for the better. London-based Standard Chartered and Germany-based Deutsche Bank looking to get into the US market? That’s not by accident, it’s a strategic play taking advantage of the perception of increased regulatory laxity.

What if this “regulatory calm” really is the storm’s eye? What occurs when the predictable and damaging – but still unintended – consequences of under-regulation begin to appear?

Banking Charters: Legitimacy or Trojan Horse?

So Circle, BitGo, and Coinbase — all of which are pursuing banking charters — seeking to land the same sort of charter seems like a natural progression. They seek to gain legitimacy, obtain access to traditional financial rails, and further serve their consumers with more products and services. Anchorage Digital's banking charter, while hard-won, serves as a powerful precedent and allows them to act as custodian for things like BlackRock's Bitcoin Trust.

Is this truly just a question of maturity, or is it an issue of entrenchment? By deeply entrenching themselves in the traditional financial system, are these crypto firms making themselves “too big to fail”? And if so, who’s going to be stuck holding the bag when the next crypto winter comes?

Intertwined Fates: Systemic Risk Rising?

The lines that separate crypto from traditional finance are beginning to fade. Banks are testing the waters with crypto, while crypto firms are trying to get banking charters. This integration is being celebrated as a major step forward, as evidence of crypto’s ever increasing acceptance.

This isn't just theoretical. The 2008 financial crisis should have taught us a very painful lesson about the dangers of interconnectedness and unchecked risk. Are we creating the conditions for a déjà vu, with Bitcoin supplanting subprime mortgages this time?

• Increased Volatility: Crypto's inherent volatility could infect the traditional financial system.
• Contagion Risk: A major crypto event could trigger a domino effect, impacting banks and other financial institutions.
• Consumer Vulnerability: Less regulation means less protection for consumers who invest in crypto assets through banks.

The state of play, as told by this narrative of development and possibility, is astounding. Taking a deeper look at the data reveals a much more complex story. The chart below from Fortunly shows just how extreme the volatility of crypto is compared to traditional assets.

Data Tells A Different Story

We’re now witnessing this harsh volatility laid bare, revealing the danger of fast and catastrophic losses, especially when blended with the established community banking sphere.

Let's be honest: political decisions rarely happen in a vacuum. In actuality, the Trump administration’s crypto-friendly policies were likely the result of a strong lobbying campaign by the crypto industry. Do these policies really put the American public first? Or are they merely a payoff to well-connected special interests?

Lobbying Influence: Cui Bono?

These are difficult questions we need to grapple with as we advocate for more transparency and accountability. Who is lobbying behind the scenes, what are they offering policymakers, and what are they buying in exchange?

As climate change threatens global economic dominance, banks are already deepening their crypto roots. This enthusiasm feels less like a thoughtful adoption of new technology and more like a dangerous bet fueled by myopic regulatory decisions. Even with all the short-term gains, they have avoided shutting down entirely. The long-term risks are just too great to ignore. We need to take a more prudent, evidence-based approach to regulating crypto. This strategy must focus on promoting stability, safeguarding investor assets, and maintaining the overall condition of the financial system. Don’t fall for the siren song of deregulation. The future of finance could very well hang in the balance.

The current enthusiasm for crypto among banks feels less like a calculated embrace of innovation and more like a reckless gamble fueled by short-sighted regulatory decisions. While the short-term gains may be tempting, the long-term risks are simply too great to ignore. We need a more cautious and data-driven approach to crypto regulation, one that prioritizes stability, investor protection, and the overall health of the financial system. Don't be fooled by the siren song of deregulation. The future of finance may depend on it.