Suddenly, it seems we are seeing the shadows of 2008.

Written by: Rana Foroohar

Translated by: Block unicorn

Last week, when I read that JPMorgan was considering loans backed by customers' cryptocurrency holdings, I felt a heavy heart, even though we all know that the day cryptocurrencies enter the real economy will come sooner or later.

Bitcoin, one of the digital assets that banks may use as collateral, has been nearly four times more volatile than major indices since 2020. It is also associated with terrorist financing, and I have yet to read anything that makes me believe it is anything more than a tool for speculators and criminals. But when it has the backing of the biggest political donors, that almost doesn’t matter.

In recent years, cryptocurrency political action committees have spent tens of millions of dollars, donating not only to Republican politicians but also to many Democrats. This effort culminated a few weeks ago with the passage of the "Genius Act." Legislation covering other crypto assets is expected to be introduced later this year. I predict this will not only lead to the next financial crisis but will also further fuel populism and political turmoil in the United States.

All of this brings to mind the year 2000, when advocates for over-the-counter derivatives flocked to Washington, asking for appropriate "regulation" so they could bring financial "innovation" to the world. The result was a sevenfold increase in the credit default swap market under inadequate regulation, ultimately leading to the financial crisis of 2008.

Now consider that U.S. Treasury Secretary Scott Basset expects the stablecoin market to grow tenfold in the coming years, from a nearly $200 billion industry to $2 trillion, permeating everything from loan underwriting to the Treasury bond market.

As Senate Banking Committee senior member and Democrat Elizabeth Warren told me last week, "We've seen this movie before," with lobbyists saying, "Please regulate us," because they want the government to confirm their "safe" investment golden label, while politicians provide bipartisan support for deregulation.

In fact, you can clearly trace back to the deregulation of derivatives in 2000, as well as the broader deregulation during the Clinton era, which weakened the barriers between trading and lending, all the way to the 2018 weakening of the Dodd-Frank regulations for regional banks (which contributed to the banking crisis of 2023) and now the "Genius Act." All of this has been pushed by both parties.

Warren was elected because voters felt betrayed by mainstream politicians; she tried to persuade Democrats not to support the Republican backing of the "Genius Act," but was unsuccessful.

But money talks, and the cryptocurrency lobbying group has shown tremendous influence by spending $40 million to defeat critics like former Ohio Senate Banking Committee Chairman Sherrod Brown. Although nearly two-thirds of Senate Democrats voted against the "Genius Act," supporters—including influential Democratic senators like Mark Warner from Virginia and Kirsten Gillibrand from New York—were enough to get the bill passed.

This gives me four reasons to be concerned.

First, the "Genius Act" (like the Commodity Futures Modernization Act of 2000) is being promoted as a way to make cryptocurrencies safer, with stablecoins backed one-to-one by the dollar.

But this does not make an overall volatile asset class any less volatile. In fact, it may only make the entire market more volatile. Advocates talk about cryptocurrencies like Bitcoin as a hedge against traditional markets, but in reality, Bitcoin is a "high beta" investment, meaning it is highly correlated with the stock market. This means that both gains and losses relative to the S&P will be amplified. Any beta value above one indicates higher volatility than the market. A recent report from Fidelity found that Bitcoin's three-year rolling beta value is 2.6.

Second, I believe that encouraging financial "innovation" in such uncertain market, economic, and monetary policy conditions is the worst timing possible.

Imagine if, in the coming months or years, the Federal Reserve has to raise interest rates significantly due to inflation, causing the market to crash, as always happens when rates rise. Cryptocurrencies would fall deeper and faster. Financial institutions holding cryptocurrencies (including many shadow banks) could find themselves in trouble, leading to a freeze in the credit market.

Suddenly, it seems we are seeing the shadows of 2008. This leads to my third concern. Supporters of the "Genius Act" claim it will support the dollar and the U.S. Treasury bond market. But it is easy to imagine cryptocurrency companies like Tether (which holds more U.S. Treasuries than Germany) having to sell bonds in a sluggish market to cover redemption losses for hedging. Then, you would see bonds being sold off cheaply, borrowing costs rising, and another disastrous situation where ordinary people would face pressure to bail out speculators.

But this time, it happens after more than two decades of growing skepticism toward politics. This also leads to my final concern. The financial deregulation pushed by the Clinton administration in the late 1990s laid the groundwork for the 2008 financial crisis and the Democratic Party's loss of support from working people. This, in turn, paved the way for Trump's rise.

Trump is now laying the groundwork for our next financial crisis by supporting (and of course trading in) cryptocurrencies. What will happen when we are caught in financial chaos, voters' skepticism toward mainstream politics deepens, and the government's interest and ability to buffer against economic recession weakens? Without cryptocurrencies, there will be no stability.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。