Wall Street And Washington Are Betting Big On Crypto—But Who Pays If It Crashes?

The merger of cryptocurrency and mainstream finance is accelerating under President Donald Trump‘s administration, raising concerns about systemic risks to the U.S. financial system.

Trump’s Jan. 23 executive order declared digital assets “crucial” to U.S. economic development and international leadership, marking a reversal from Biden-era restrictions.

Major financial institutions are already positioning themselves. Bank of America BAC CEO Brian Moynihan has indicated banks will embrace cryptocurrencies like stablecoins for transactions. Treasury Secretary Scott Bessent and Commerce nominee Howard Lutnick bring significant crypto exposure to the cabinet, with Lutnick having managed assets for the $140 billion USDT stablecoin issuer Tether.

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The administration’s crypto enthusiasm extends to symbolic gestures. Trump promoted his own meme cryptocurrency ($TRUMP) before inauguration, with Elon Musk naming a new government department after another digital token.

Regulatory changes are clearing paths for Wall Street’s crypto adoption. The Securities and Exchange Commission no longer requires institutions to account for customer crypto assets on their own balance sheets, while the Federal Deposit Insurance Corporation has signalled more transparent crypto regulation.

However, experts warn of risks. Yale University’s Steven Kelly expressed concern to The Economist about “ties between what happens in crypto prices and what happens to banks,” pointing to the 2023 collapses of crypto-focused banks Silvergate and Signature during market downturns.

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The industry’s reputation remains problematic. Recent high-profile criminal cases include FTX founder Sam Bankman-Fried‘s 25-year sentence for fraud and Binance founder Changpeng Zhao‘s imprisonment for money laundering.

Despite the warning signs, Bitcoin recently topped $100,000 as traders speculate on cryptocurrency’s future role in U.S. financial markets. Standard Chartered Bank analysts project Bitcoin could reach $500,000 before Trump leaves office in 2029.

Traditional banks and crypto firms are already clashing over access to Federal Reserve payment systems. About 9,000 firms hold master accounts with the central bank, but crypto-focused institutions like Custodia Bank and Kraken Financial face resistance to their applications. 

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Bank lobbying groups support restricting access, citing money-laundering and terrorist financing risks.

The changes could fundamentally reshape Wall Street. Dylan Walsh of Oliver Wyman told The Economist that digital-asset companies might acquire mainstream financial institutions, potentially including those with banking licenses. “As a practical matter it’s much harder for regulators to un-ring the bell,” University of Wyoming's Julie Andersen Hill said to The Economist.

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