The New Yorker: Irrational Exuberance? How Long Will the "Trump Crypto Craze" Last?
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The New Yorker: Irrational Exuberance? How Long Will the "Trump Crypto Craze" Last?
"With the election of the second Trump administration, the bells for the next financial crisis have already begun to ring."
Navigating Web3 tides with focused insightsBy John Cassidy
Translated by Bitpush News
"As governments supportive of cryptocurrency prepare to take power—and crypto investors cheer—there are some similarities to the internet bubble at the end of the 1990s."
Last week, after Donald Trump announced his nomination of cryptocurrency advocate Paul Atkins as chair of the U.S. Securities and Exchange Commission (SEC), Bitcoin surged past $100,000, sending crypto enthusiasts into celebration. The mood in the cryptocurrency market reminds me of the internet bubble and its inevitable collapse—an episode I documented over two decades ago in a book.
Back then, like now, long-term market participants and observers—including myself—were equally excited, equally predicting prices would go higher, even much higher, and equally uneasy.
To be sure, cryptocurrency investors, entrepreneurs, and pro-crypto donors have good reason to feel upbeat. Before the November election, they poured hundreds of millions of dollars into supporting politicians favorable to crypto. Their bets on a Trump victory and the defeat of prominent crypto skeptics—including Democratic Senator Sherrod Brown of Ohio—have paid off handsomely.
The SEC, the nation’s leading investor protection agency, under Gary Gensler’s leadership, cracked down hard on an industry he described as “rife with fraud and scams,” filing lawsuits against multiple crypto firms, including the exchange Coinbase and the digital payments network Ripple.
But under Paul Atkins, ongoing SEC litigation and other cases could be shelved. Atkins, a conservative lawyer who previously served as an SEC commissioner during George W. Bush’s administration, currently co-chairs the Token Alliance, a cryptocurrency lobbying group.
Overall, the SEC appears poised to adopt a friendlier stance toward issuers of currencies and tokens—prospect that alarms critics of the crypto industry. Dennis Kelleher, president of Washington-based financial reform organization Better Markets, told me: “The basic rules that have protected investors for decades will be significantly weakened for crypto assets. The industry will be allowed to expand with minimal regulation or accountability. It will be like the 1920s—all caveat emptor.”
Crypto executives hailed Atkins’ selection as historic. Michael Novogratz, founder and CEO of crypto firm Galaxy Digital, told Reuters: “We’re witnessing a paradigm shift. Bitcoin and the entire digital asset ecosystem are about to enter the financial mainstream.”
In the late 1990s, the key paradigm shift underpinning the internet bubble was the rise of e-commerce, which gave birth to startups going public on Nasdaq—such as Amazon, eBay, Pets.com, and Webvan.
Speculative digital assets—including Bitcoin, Dogecoin (a cryptocurrency promoted by Elon Musk), and the new crypto token issued by the Trump family’s World Liberty Financial—cannot be directly compared to those 1990s startups, many of which had plausible paths to massive profits, even though numerous ones eventually went to zero. (Amazon is now worth about $2.4 trillion. Webvan, an online grocery chain promising rapid home delivery, raised $375 million in an IPO in 1999 and filed for bankruptcy in 2001.)
Yet regardless of the object of speculation, when I wrote about the internet stock bubble back then, I concluded that large-scale speculative episodes rely on a “four-horse carriage”:
New technology that excites investors;
Effective means for them to communicate;
Active participation from the financial industry;
And a supportive policy environment.
In the case of crypto assets, the invention of Bitcoin and blockchain—a secure, decentralized digital ledger—plus the rise of social media satisfied the first two conditions. But Wall Street and policymakers remained skeptical, making crypto investing a niche pursuit. During the 2022–23 crypto crash, Bitcoin lost more than 70% of its value, and major crypto firms, including Sam Bankman-Fried’s FTX, collapsed—yet the broader stock market and U.S. economy emerged unscathed.
With Trump’s election, all four conditions now appear to be in place, laying the groundwork for a broader speculative bubble. Blockchain technology remains under development, with advocates still claiming it is poised to disrupt banking systems, transform international payments, or deliver other transformative impacts. On Elon Musk’s X, crypto enthusiasts have a massive social platform to promote digital assets and denounce skeptics. But the critical developments are that both policy and Wall Street are now aligning with the crypto world.
Under Atkins, the SEC may shift its stance on a core legal question: whether crypto assets are securities like stocks and bonds—subjecting them fully to national securities laws—or more akin to physical commodities such as gold and silver, which face lighter regulation because they are seen as fungible, easily identifiable, and assessable. (If you buy a gold bar, you know exactly what you’re getting.)
During Gensler’s tenure, the SEC treated many crypto assets as securities, imposing extensive registration and disclosure requirements on their issuers. The agency accused Coinbase of operating an unregistered securities exchange and Ripple of conducting an unregistered securities offering when selling its XRP cryptocurrency. Both companies denied the allegations. Earlier this year, a federal judge ruled that most of the SEC’s case against Coinbase could proceed—a decision widely interpreted as a win for the SEC. However, Ripple’s lawsuit concluded with a ruling that the company did not violate securities law by selling XRP to retail investors on electronic exchanges—a result Ripple called a significant victory.
Looking ahead, WilmerHale, an international law firm, said in a recent client alert that under a second Trump administration, the SEC “may propose tailored rules that recognize differences between crypto assets and traditional securities”—exactly what the crypto industry wants. Meanwhile, on Capitol Hill, Republicans could pass legislation freeing many crypto issuers from SEC oversight by expanding the jurisdiction of the Commodity Futures Trading Commission (CFTC), whose budget and enforcement staff are far smaller. Earlier this year, the House passed a Republican-backed bill that would empower the CFTC to regulate digital assets as commodities, provided the underlying blockchain is decentralized. Gensler opposed the bill, arguing it would weaken investor protections and allow crypto issuers to self-certify their products as digital commodities rather than securities. With Republicans now controlling the Senate, similar legislation could emerge there and reach the president’s desk.
The incoming crypto-friendly administration has already pledged to make the U.S. the “crypto capital of the planet.” Crypto enthusiasts expect Trump to fulfill his campaign promise to establish a “national strategic Bitcoin reserve.” Last week, Trump appointed David Sacks, Musk’s former business partner and venture capitalist, as his “White House AI and crypto czar”—further boosting morale among crypto supporters.
Theoretically, the Federal Reserve could curb the rise of crypto by limiting financial leverage, raising interest rates, or both. But such measures are unpopular when speculation is surging and asset prices are soaring.
In the late 1990s, after initially warning of “irrational exuberance,” then-Fed Chair Alan Greenspan stood aside as the Nasdaq soared. (From January 1998 to March 2000, the tech-heavy index tripled.) Today, the likelihood of Fed intervention to suppress crypto asset prices seems slim. Instead of hiking rates, the central bank is moving to cut them. Last week, Fed Chair Jerome Powell compared Bitcoin to gold—as an investment asset, a point long made by many in the crypto community.
Finally, Wall Street is embracing crypto. After losing a key legal battle in 2023, the SEC approved the launch of Bitcoin exchange-traded funds (ETFs) earlier this year. These funds track the value of the cryptocurrency and are accessible to retail investors. Major financial firms—including BlackRock, Fidelity, and Franklin Templeton—now offer these products, while Charles Schwab offers a “crypto-themed ETF,” an index fund designed to track a basket of crypto assets and related companies. Since the election, Bitcoin ETFs have risen about 45%, likely spurring other financial firms to roll out similar offerings.
Taking all these factors together, it’s no surprise that crypto asset values are rising—or that some observers are nervous. Eswar Prasad, an economist at Cornell University and author of *The Future of Money: How the Digital Revolution Is Changing Currencies and Finance*, worries recent developments may lead many ordinary Americans to view crypto assets as safe investments, rather than highly volatile and speculative ones.
“The U.S. government appears poised to approve a range of crypto products and implicitly endorse crypto as an asset class,” Prasad told me. “This could truly amplify the crypto bubble. And if something bursts that bubble, we might end up with very bad outcomes.”
How bad? That depends on how deeply crypto assets are interconnected with the rest of the financial system. The internet bubble engulfed hundreds of startups and shares of many large companies. When it burst in 2000, numerous startups failed and the Nasdaq lost over 70% of its value; the economy entered a relatively mild recession lasting less than a year. By contrast, the bursting of the housing bubble in the late 2000s had far more catastrophic consequences, as the banking system turned out to be heavily dependent on subprime mortgage assets. When those assets evaporated in value, they nearly destroyed the entire financial system, plunging the economy into one of the worst recessions since the 1930s.
So far, federal banking regulators have worked to contain crypto within its own sphere, urging banks to proceed cautiously when dealing with crypto and prohibiting them from holding any crypto assets on their balance sheets. In a joint statement last year, the Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency wrote: “It is important that risks associated with the crypto asset sector that cannot be mitigated or controlled do not migrate to the banking system.” Powell reiterated the Fed’s goal last week—ensuring that any interaction between crypto and banks does not threaten the stability of the banking system.
But Dennis Kelleher reminded me that recent history isn’t entirely reassuring. During the 2022–23 crypto crash, coinciding with a sharp rise in interest rates, three banks closely tied to the crypto industry collapsed: Silvergate, Silicon Valley Bank, and Signature Bank. Kelleher predicts Trump will appoint bank regulators in a more laissez-faire mold, adding: “You’ll see crypto seeping into the cracks of the financial system like water… I believe the clock for the next financial crisis has already started ticking with the advent of a second Trump administration.”
The worst-case scenario is full-blown financial collapse. I’ve seen many times in the 1990s how wild enthusiasm for something often leads to bubbles. Prasad believes crypto could follow a similar path—and that the government might tacitly permit, or even encourage, the hype. When I asked the economist if he could think of a historical analogy, he pointed to China’s past encouragement of citizens investing in real estate—and we all know how well that turned out.
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