The scale of the graft is decidedly off the charts, but the revelation that Donald Trump raked in a personal fortune of $2.2bn during his first year in office should come as no surprise. The president didn’t even try to hide his venality. Not only did he refuse to sell businesses and put assets in a blind trust, as other presidents have done to limit opportunities for self-dealing; the quid pro quos with foreign governments and assorted magnates were exposed for all to see.
It is troubling that the president of the United States would so nonchalantly deploy his official powers to profit from dealings with money launderers and Middle Eastern princes. It is perhaps more so that the supposedly robust checks and balances upholding American governance proved powerless to stop him. (Here’s waiting for the supreme court to define Trump’s dealings as “official acts” in order to exonerate him.)
What’s most worrying, at the moment, though, is the extent to which Trump put at risk the stability of the United States economy. His business dealings are not little grifts that are harmless to America. Trump’s most lucrative maneuver – which netted him $1.2bn – came from the cryptocurrency industry. The pro quo from Washington included getting regulators off crypto’s case and plugging the currency into the formal financial system. That is likely to prove immensely costly to us all.
Seventeen years since bitcoin emerged on the scene, crypto hasn’t yet found a purpose other than to pay for crime, allow countries like Russia and Iran to avoid American sanctions and provide volatile assets for fools and gamblers to bet their savings on – like Dutch tulips in the 17th century, though not as pretty.
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Trump once said crypto was a “scam”. That was before the industry piled gobs of money into his presidential campaign and, notably, before he took a personal stake in the business. He launched the crypto company “World Liberty Financial” (of which he sold 49% to an investment firm tied to the United Arab Emirates for $500m) and issued his memecoin $Trump, which cost naive, Maga-friendly investors nearly $4bn but netted the president more than $600m.
Trump nixed the crypto-enforcement program at the Securities and Exchange Commission – aborting crypto-related lawsuits and investigations – and gutted the unit in charge of overseeing the industry. The Department of Justice announced it would pull back investigations and prosecutions of money laundering and other shenanigans against crypto-related platforms.
Then, campaign coffers seeded with generous contributions from the industry, 206 Republicans and 102 Democrats in Congress passed the Genius Act, which Trump aggressively promoted, that entangled crypto in the regular banking system, where your and my savings live.
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Banks and non-banks – even retailers like Walmart – can now issue their own “stablecoin”, a type of cryptocurrency, pegged at a fixed value of $1, that today is used almost exclusively to buy and sell riskier crypto assets like bitcoin.
Unlike bank accounts, stablecoin holdings are not insured by the FDIC. Issuers will guarantee their value by investing all the proceeds in high-quality assets, like treasury bills. The promise is that this will broaden their use outside of the speculative crypto space and allow them to be a payment platform that cheaply executes transactions in real time on a decentralized electronic ledger. This could mean quicker and cheaper international transfers, for instance.
The financiers are piling in. As of early June, there were 233 stablecoins available on the crypto market. Mastercard is buying up crypto businesses and accepting settlements in stablecoin. Big banks like Citi and JPMorgan hope to defend their business from crypto upstarts by setting up their own crypto deposit infrastructure and launching their own coins. Brokers are allowing customers to invest with stablecoin.
And Trump is pushing hard for swift passage of the Clarity Act,which would offer regulation-light legal cover for the broader universe of crypto businesses to issue and support trading in more speculative assets like bitcoin.
As Yale’s Gary Gorton and Jeffery Zhang from the University of Michigan wrote: “Some policymakers may view stablecoins as an up-and-coming financial innovation that does not currently pose any systemic risk and therefore believe that the best strategy is to wait to see how things play out. That would be a terrible mistake.”
Indeed, to the enthusiasts embracing crypto in the name of technological progress, I have a vintage 2006 mortgage-backed bond to sell you. The “efficiency” case for inviting crypto in from the cold ignores the enormous stress it is likely to impose on the financial system. It’s been almost 20 years since the last massive financial crisis. It looks like Trump and his crypto-funded cronies are happy to engineer the next.
As they become established in the financial ecosystem, stablecoins will inevitably draw money from somewhere else, perhaps some foreigners who want dollar assets, but also, inevitably, commercial banks. This may feed demand for treasurys – helping Washington finance its massive debt – but will also reduce lending to the real economy.
The payment system will be remade as hundreds of different private stablecoins, each with its own risk profile, compete for business. Stablecoin issuers will be tempted to stretch the rules, which require that they invest the proceeds in only the safest assets to guarantee their $1 peg. Many will instead buy riskier, higher-yielding stuff. As the Rutgers economist Michael Bordo pointed out: “There are always new entities that are going to figure out a way to be outside the regulatory net.” The “who owns what” question will invite the stablecoin equivalent of bank runs.
Even if most issuers invest largely in the safest treasurys, the set-up – opaque, lacking a lender of last resort – invites chaos. As Barry Eichengreen from the University of California, Berkeley noted: “If panicked customers force [issuers of stablecoin] to sell, treasury prices could collapse, sharply increasing interest rates and destabilizing other financial markets and our entire economy.”
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Rather than allow all comers to issue private stablecoins, the government could ask the Federal Reserve to issue a digital dollar, fully backed – like the regular dollar – by faith in the solvency of the United States. The benefits of the new technology could be enjoyed across the economy without incurring the risk of a massive run to topple the system as a whole.
The problem with that model, however, is obvious: it would not provide the same opportunity for Trump and his family to rake in another few billion.
Eduardo Porter is a journalist focused on economics and politics. He writes the newsletter Being There on Substack.
