The basic reporting is that the GENIUS Act provides a regulatory framework for stablecoins. But this angle misses the main point of the legislation. The reason the crypto industry spent over $130 million on the 2024 elections — and who knows how many million more in lobbying for the GENIUS Act — is because it will make them even more in profits. While the crypto industry has been making money off oforganized crime and investors who can tolerate high levels of risk, the GENIUS Act promises to give the industry access to everyone else — a vastly larger pool for potential profits. The GENIUS Act exists to mainstream the crypto industry.
The GENIUS Act’s regulations are focused on a type of cryptocurrency called “stablecoins,” which are designed to have a constant value and avoid the volatility of other cryptocurrencies. For example, a stablecoin pegged to the US dollar, in theory, will always be worth a dollar. The Act sets rules for the establishment and auditing of stablecoins.
The supposed benefits of stablecoins are that they will allow people to use digital stablecoin wallets like a debit card, and it will allow people to transfer money quickly with low fees. But, if one wants a debit card, it is very easy to have one without using stablecoins. If one wants to transfer money quickly and cheaply, even to foreign countries, it is possible to do these things without stablecoins. In other words, there is no added benefit to the general public from the expanded use of stablecoins. The only people who really benefit from the GENIUS Act are the people in the stablecoin industry.
Will Trump Regulate Trump?
There is little reason to believe that the Trump administration, which pushed for this law, is going to do a good job regulating the stablecoin industry. The administration has explicitly taken an anti-regulation stance. Although crypto scams are proliferating, the administration has weakened agencies like the Consumer Financial Protection Bureau and the Federal Trade Commission that work to protect the public from these scams.
The fact that Trump is involved in the crypto industry should also cause observers to be skeptical about how carefully the Trump administration will regulate crypto. In other words, will Trump regulate Trump? Trump’s crypto company, World Liberty Financial, has received $100 million from a Dubai-based company, but journalists are unable to find out who owns the company. Changpeng Zhao is a crypto billionaire and the founder of Binance, a cryptocurrency exchange. The administration recently dropped a lawsuit against Binance after the company listed Trump’s stablecoin. Zhao has been convicted of money laundering and is seeking a presidential pardon from Trump. There is reporting from Bloomberg stating that Zhao helped World Liberty Financial develop its stablecoin. Justin Sun is another crypto billionaire whose fraud investigation was dropped by the Trump administration. Sun has put $94 million into Trump’s crypto ventures. The Trump administration has also pardoned executives of the BitMEX crypto exchange and dropped the case against the Coinbase cryptocurrency platform. None of these developments suggest that the Trump administration is going to be tough on crypto-crime.
While the GENIUS Act explicitly prohibits members of Congress from profiting off of stablecoins on ethical grounds, it does not prohibit the president or other members of the executive branch from doing so. It is hard to understand why the ethical concerns around Congress would not apply to the executive branch.
Growing Risk to the Financial System
There are several dangers to the American people from the mainstreaming of stablecoins. The biggest one is probably a financial crisis similar to the subprime mortgage crisis that led to the Great Recession. As more companies and wealthy individuals encourage the use of stablecoins, it will become a larger portion of our financial sector and more deeply entangled with non-crypto finance. It is easy to imagine a stablecoin failing and producing bank runs that cause significant financial damage.
This scenario is not purely theoretical. There have been 23 stablecoins that have failed. Silicon Valley Bank, Signature Bank, and Silvergate Bank failed, in part, due to their strong ties to the crypto industry. The supporters of the GENIUS Act will argue that the law is designed to prevent the type of financial crisis that I am describing. But part of the reason those banks failed was because the bank regulatory system was understaffed. With the Trump administration cutting regulatory staff, including at the agency meant to prevent bank failures — the Federal Deposit Insurance Corporation — the system is in much worse shape today. The GENIUS Act will increase the threat to the financial system at a time when the Trump administration is weakening the agencies that could protect the public.
This first appeared on CEPR.
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This post was originally published on CounterPunch.org.