Recently, I was reading an article by Annie Lowrey in The Atlantic, where it was discussed that the Trump administration’s crypto-friendly policies could usher in a speculative frenzy in the market and this could lead to a major decline in the crypto market. Lowrey warned about the future of the market by saying that Trump will usher in a speculative frenzy. Although I am not a big trader, I have some knowledge about the crypto market, and here I am sharing with you what I have learned.
The first question is, why do people invest in cryptocurrencies? Some of the main reasons are: The volatility of cryptocurrency prices creates big profit opportunities for investors. The desire to invest in something new outside the traditional stock market attracts many to crypto. Bitcoin is seen by many as “digital gold”, which is helpful in protecting wealth against inflation. Crypto is free from governments and central banks, which is the symbol of an independent financial system. Blockchain technology and the potential of cryptocurrencies have encouraged many to invest in this market. Platforms like Ethereum and Solana are working on DeFi, NFTs, and smart contract technologies, which have created new investment opportunities.
The Trump administration’s crypto-friendly policies could create significant activity in the market. Trump will usher in a speculative frenzy—Lowrey said, citing policies that could make the US a global leader in crypto. Institutions like BlackRock and Goldman Sachs are already creating crypto-related financial products, signaling mainstream acceptance. However, this frenzy could also backfire. Lowrey warns that there are risks to a speculative boom: rising prices, rising debt, and overconfidence—which usually predict a decline.
Lowry discussed the Financial Innovation and Technology for the 21st Century Act (FIT21), which would shift oversight of cryptocurrencies from the SEC to the CFTC. This could lead to a lack of transparency and enforcement, which could open up opportunities for fraud and hacking. Stable coins, which act as a bridge between crypto and the traditional financial system, could pose significant risks if they fail, such as the collapse of Terra USD.
Lowry drew parallels between the crypto market and the derivatives market before the 2008 financial crisis. In both cases, systemic risk is hidden through complex financial instruments and regulatory loopholes. The unregulated growth of tokenized assets and digital products could repeat the 2008 situation.
The promise of cryptocurrencies is undeniable, but it demands careful management. Lowry's article reminds me that there are many examples of speculative bubbles and financial crises in history. If policymakers provide strong supervision along with innovation, it will be possible to grow and reduce risks in the crypto sector.
I am providing the link to the article here. If you want to read it: The Great Crypto Crash. Please comment on my blog and let me know what you think about the crypto market. Thank you.