The Atlantic: How Cryptocurrency Will Trigger the Next Financial Crisis?
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The Atlantic: How Cryptocurrency Will Trigger the Next Financial Crisis?
The danger of stablecoins lies precisely in their apparent safety.
Navigating Web3 tides with focused insightsSource: Dong Bu Jing
Bitcoin has fallen below $90,000 today, erasing nearly all of its gains this year. Almost unnoticed, over the past six weeks, more than $1 trillion has been wiped out from the cryptocurrency market.
CoinGecko, a data provider tracking over 18,000 tokens, reported that since hitting a market peak on October 6, the total market capitalization of these tokens has dropped by 25%, wiping out approximately $1.2 trillion.
Some analysts pointed out, "Despite institutional adoption and positive regulatory momentum, the cryptocurrency market's gains this year have now completely vanished." The Financial Times believes the main reason is growing market concerns over inflated tech stock valuations and uncertainty in U.S. interest rates, triggering sell-offs in speculative assets.
In the midst of this chaos, The Atlantic jumped on the trend and published an in-depth commentary titled: How Cryptocurrency Could Trigger the Next Financial Crisis. However, the article does not focus on Bitcoin, altcoins, or Web3, but rather on what many consider the most "secure" and "safe"—stablecoins.
Why are so-called "stable" coins actually the most dangerous?
The author argues that the danger of stablecoins lies not in their instability, but in how convincingly they pretend to be "too stable."
On the surface, stablecoins act as the anchor of the crypto world—pegged to the U.S. dollar, facilitating transactions and serving as the market’s “bridge.” Whether you’re trading, using derivatives, or arbitraging, you can hardly avoid them.
But it is precisely this "seemingly safe" design that could make them the next detonator. Especially after the Trump administration pushed through the GENIUS Stablecoin Act, set to take full effect in 2027, stablecoins have not only escaped effective regulation but gained implicit government endorsement, enabling faster expansion and attracting more capital, while avoiding prudent oversight, capital requirements, and deposit insurance like traditional banks.
If market confidence collapses, issuers may fail to meet redemption demands, and a digital version of a "bank run" could unfold in milliseconds on-chain. At that point, even the U.S. Treasury market and the global financial system could be shaken by the very thing that appeared to be the safest.
The author warns that stablecoins are not just another tech bubble, but a risk factor that could deeply intertwine with sovereign currencies, bond markets, and Federal Reserve interest rate operations. The U.S. may be repeating the mistakes of the 2008 subprime crisis—but this time, the threat isn’t mortgages, it’s "dollars on the blockchain."
Below is the original content:
On July 18, 2025, President Donald Trump signed a law with a rather boastful name: the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins).
If this legislation proves as disruptive to the financial system as it now appears, the term "genius" will become bitterly ironic: who would think letting the crypto industry regulate itself is a good idea?
This full-named "Guiding and Establishing National Innovation for U.S. Stablecoins Act" aims to create a regulatory framework for a type of cryptocurrency known as stablecoins.
Despite the reassuring name, stablecoins—cryptocurrencies promising to maintain a stable value tied to real-world currencies (usually the U.S. dollar)—are currently the most dangerous form of cryptocurrency. Their danger stems precisely from how "safe" they appear.
Most people know cryptocurrencies are highly volatile and speculative. The values of well-known cryptos like Bitcoin and Ether fluctuate wildly day-to-day and year-to-year. Stablecoins were designed specifically to eliminate such volatility, yet they may pose a far greater threat to the broader financial system.
The GENIUS Act (similar to the EU's 2023 Markets in Crypto-Assets Regulation) introduces some safeguards, but these could dramatically expand the stablecoin market. If—or when—these stablecoins collapse, the GENIUS Act almost guarantees that the U.S. government will have to bail out issuers and holders with hundreds of billions of dollars.
We always hear the phrase: "This time is different." In finance, that’s often a prelude to disaster. In the early 2000s, the financial sector claimed they had invented a "risk-free asset" by packaging subprime loans into bonds—many even rated AAA.
But risk always comes at a price. Dressing up high-risk assets as low-risk ones lets speculators keep the profits while passing losses to others. In 2007, those "AAA"-rated subprime bonds collapsed, plunging the world into the worst economic downturn since the Great Depression. Stablecoins are performing the same kind of alchemy—turning junk into gold—and could lead to the same outcome.
A stablecoin bought today for $100 should theoretically remain worth $100 in the future. This design makes it seem like a reliable way to store digital value. Stablecoins are built to offer the safety and liquidity of bank deposits within the crypto ecosystem.
But these "stable" promises are often unreliable. Over the past 11 years since stablecoins emerged, multiple issuers have defaulted, causing tens of billions in losses.
Terra, once one of the top stablecoin issuers, lost nearly $60 billion in value during its May 2022 crash. As Nobel laureate Jean Tirole put it: "Stablecoins, like money market funds, look safe, but can collapse under stress."
The GENIUS Act is scheduled to officially take effect in January 2027, aiming to attract investors by reducing risks and enhancing stability. But the problem is these "safeguards" primarily protect issuer profits without effectively reducing risks to consumers and taxpayers. The result could be that when stablecoins face another crisis, the impact will be larger and the damage to the real economy more severe.
Stablecoin advocates claim these cryptocurrencies offer more advanced technology for storing and transferring money. Bank transfers are often slow; international remittances are expensive and cumbersome. Stablecoins appear to enable large cross-border payments as easily as paying a babysitter via Venmo.
This promise is largely false. For legitimate transactions, cryptocurrencies remain highly vulnerable to fraud, hacking, and theft. According to blockchain analytics firm Chainalysis, nearly $3 billion worth of cryptocurrency was stolen in the first half of 2025 alone. 2
In 2024, the CEO of a Texas pharmaceutical company accidentally sent about $1 million in stablecoins to a stranger’s wallet due to a one-digit error in the address. The recipient refused to return it, and the stablecoin issuer Circle stated it bore no responsibility. The company has since filed a lawsuit against Circle.
In reality, most cryptocurrency holders don’t use them for spending. A 2023 survey by the Federal Deposit Insurance Corporation (FDIC) found that only 3.3% of crypto owners use them for payments, and only about 2% use them to buy actual goods.
The real advantage of stablecoins is that they allow asset holders to use the U.S. dollar system while bypassing U.S. regulations. Currently, approximately 99% of stablecoins are pegged to the dollar.
The GENIUS Act claims issuers must comply with anti-money laundering laws like "Know Your Customer" (KYC), but only when the coins are first issued in the U.S. After that, there is little traceability regarding transfers, recipients, or destinations.
For example, Tether plans to launch a new stablecoin not targeting U.S. or EU customers, thus completely circumventing KYC rules.
Meanwhile, decentralized exchanges allow people to swap stablecoins with no oversight, making it easy for unregulated coins to enter the U.S. market. Although the GENIUS Act requires reporting suspicious transactions, most of the stablecoin ecosystem operates outside the U.S., making enforcement extremely difficult.
Due to these inherent risks, the stablecoin market has remained relatively small—currently between $280 billion and $315 billion, roughly equivalent to the size of the 12th largest U.S. bank. Even if the entire stablecoin market collapsed tomorrow, the U.S. financial system might suffer shocks but could still recover.
However, Citigroup predicts that if the GENIUS Act takes effect, the stablecoin market could swell to $4 trillion by 2030. A default at that scale could severely shake the global financial system.
Functionally, stablecoin issuers are essentially "deposit-taking institutions". They accept cash and promise immediate redemption. Banks have deposit insurance, quarterly inspections, and annual audits. The GENIUS Act abandons these safeguards, requiring only annual audits for large issuers with over $50 billion in assets.
The GENIUS Act claims to eliminate default risk by mandating that issuers back their coins with "liquid assets such as U.S. dollars or short-term Treasuries," and disclose reserves monthly. That sounds reliable. But investing cash in assets lasting only hours or days yields minimal returns.
Crypto companies spent tens of millions lobbying for this bill and made massive political donations, including substantial support for President Trump’s campaign—they clearly didn’t do it just to "earn some interest."
The GENIUS Act allows the use of Treasury bonds with maturities up to 93 days. These typically yield around 4% annually but carry interest rate risk: when rates rise, bond prices fall. For instance, in summer 2022, 3-month Treasury yields surged from under 0.1% to 5.4%. If issuers sell early, they could incur losses.
If you're a stablecoin holder, you might worry your issuer holds bonds losing value. If redemptions spike, the issuer might survive the first few withdrawals but eventually run out of funds. Once panic hits, everyone rushes to cash out, triggering a "bank run" in the digital age.
Even if a traditional bank’s assets lose value on paper, customers aren’t worried because of federal deposit insurance. Stablecoin issuers have no such insurance—their solvency relies solely on assets that fluctuate in value by the minute. By the time the market senses danger, it’s already too late.
Supporters argue the GENIUS Act mandates asset diversification—requiring holdings in cash, overnight assets, 30-day assets, etc.—and does require disclosure. But these disclosures are severely delayed, failing to match the reality of funds moving by the second. An issuer appearing healthy in a monthly report could be insolvent a week later.
This combination of information lag, lax regulation, and lack of insurance is the perfect recipe for panic and "bank runs." As more people use stablecoins to store dollar assets, even minor disturbances could trigger systemic crises. To meet redemptions, issuers would dump Treasuries, dragging down the entire Treasury market—raising interest rates and hurting everyone.
Take Tether, headquartered in El Salvador, as an example. It currently holds $135 billion in U.S. Treasuries, making it the 17th largest holder globally, behind only Germany. In May 2022, amid market doubts over its reserve authenticity, Tether faced $10 billion in redemptions within two weeks. Had it collapsed then, the government could have stayed out. But now, with its larger scale, the risk cannot be ignored.
The GENIUS Act bans certain high-risk assets but fails to address the core issue: the profit of stablecoins comes from risk. In September, Tether CEO Paolo Ardoino announced the company is considering fundraising with a potential valuation of $500 billion.
This kind of regulatory void—avoiding insurance premiums while expecting government bailouts—was the root cause of the 2008 money market fund crisis. Back then, the federal government stepped in to guarantee $2.7 trillion in uninsured assets.
Supporters see crypto as the future of money; critics call it a scam serving crime. Warren Buffett once said: "Bitcoin is probably rat poison squared."
Currently, these debates barely affect most people. For example, FTX’s bankruptcy at the end of 2022 had almost no impact on the general economy. But stablecoins are different—they are designed to be deeply intertwined with the real financial system.
The GENIUS Act aims to turn them into new buyers of U.S. debt. The White House even stated in a briefing: "The GENIUS Act will increase demand for U.S. Treasuries, reinforcing the dollar’s role as the global reserve currency."
The question is: who will drive this demand? One answer: criminals. Global "dirty money" is estimated at $36 trillion, accounting for 10% of global wealth. Stablecoins provide the perfect channel to launder it.
In 2023, Binance paid the U.S. Treasury over $4 billion in fines for allegedly facilitating transactions for terrorist organizations. In October 2025, President Trump pardoned Binance’s founder, and reports suggest Binance will collaborate with the Trump family’s crypto venture.
Why did the GENIUS Act pass Congress so easily? Vote counts were 68:30 in the Senate and 308:122 in the House.
Proponents are skilled lobbyists; beneficiaries are active, victims indifferent. Traditional banks initially thought they were unaffected because the bill prohibits stablecoin issuers from paying interest. But the stablecoin industry is actively trying to circumvent this restriction. Now, Goldman Sachs, Deutsche Bank, and Bank of America are considering launching their own stablecoins.
Opponents in Congress, such as Senator Elizabeth Warren, highlight the Trump family’s massive crypto interests. She’s right. According to the Financial Times, the Trump family earned over $1 billion in pre-tax profits from the crypto industry in the past year. One consequence was the Justice Department announcing in April a major reduction in investigations into crypto scams.
While such corruption is despicable, it’s not systemic risk. The real danger is: stablecoin issuers want to absorb massive deposits without having adequate solvency guarantees.
History has shown: the U.S. government is unlikely to stand by during a major stablecoin default, yet the GENIUS Act gives regulators no tools to prevent such a crisis.
The bill hasn’t taken effect yet—there’s still time to limit the damage.
We can treat stablecoin issuers as deposit-taking financial institutions, requiring them to pay insurance premiums for dollar-backed stablecoins, adopt event-driven disclosure, and establish headquarters and pay taxes in the U.S. At the same time, we should reform the current costly cross-border remittance system, undermining the crypto industry’s false advantage of "fast transfers."
After the 2008 financial crisis, investor Jeremy Grantham was asked: "What did we learn from this crisis?" He replied: "A lot in the short term, a little in the medium term, and nothing in the long term."
Today, stablecoins—with the same risk structure as subprime securities—are reminding us that the last crisis has faded far enough into memory to be forgotten.
In a free country, the government won’t stop you from speculating. But danger arises when speculators gamble with other people’s money—which is exactly what stablecoins represent, and the GENIUS Act is fueling this trend.
If left unchecked, the next U.S. financial disaster is merely a matter of time. [Dong]
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