Source: Not Understand Economics
Bitcoin fell below $90,000 today, erasing almost all of this year's gains. Unnoticed, over the past six weeks, the cryptocurrency market has evaporated more than $1 trillion.
Data provider CoinGecko has tracked more than 18,000 tokens. Since the market peak on October 6, the total market capitalization of these tokens has dropped by 25%, with about $1.2 trillion wiped out.
Some analysts have pointed out, "Despite institutional adoption and positive regulatory momentum, this year's gains in the cryptocurrency market have now been erased." The Financial Times believes the main reasons are concerns over overvalued tech stocks and uncertainty about U.S. interest rates, which have triggered a sell-off of speculative assets.
Amid the chaos, The Atlantic seized the opportunity to publish an in-depth commentary: How Cryptocurrency Could Trigger the Next Financial Crisis. However, the article does not discuss Bitcoin, altcoins, or Web3, but rather what many consider the most "reliable" and "safe"—stablecoins.
Why are so-called "stable" coins actually the most dangerous?
The author believes that the risk of stablecoins does not lie in their "instability," but in their disguise as being "too stable."
On the surface, stablecoins are the "anchor" of the crypto world—they are pegged to the dollar, facilitate circulation, and serve as a "bridge" for the entire market. Whether you are trading coins, engaging in contracts, or arbitraging, you can hardly do without them.
But it is precisely this "seemingly safe" design that could make them the next flashpoint. Especially after the GENIUS Stablecoin Act, promoted by the Trump administration and set to be implemented in 2027, stablecoins have not only avoided effective regulation but have instead gained implicit official endorsement, allowing them to expand more rapidly, absorb more funds, yet without the prudential regulation, capital requirements, and deposit insurance of the banking system.
Once market confidence collapses, issuers may not be able to redeem on time, and a digital "bank run" could occur on-chain in milliseconds. At that point, the entire U.S. Treasury market and even the global financial system could be shaken by what "appeared to be the safest" risk.
The author points out that this is not an ordinary tech bubble, but a risk factor that could be deeply linked to sovereign currencies, bond markets, and Federal Reserve interest rate operations. The U.S. may be repeating the mistakes of the 2008 subprime crisis, except this time, the danger is not mortgages, but "dollars on the blockchain."
The following is the original content:
On July 18, 2025, President Donald Trump signed a rather self-congratulatory law: the "Guiding and Establishing National Innovation for U.S. Stablecoins Act" (GENIUS Act).
If this act, as it now appears, is destined to disrupt the financial system, then the name "genius" will become an irony: who would think it's a good idea to let the crypto industry make its own rules?
This act, officially called the "Guiding and Establishing National Innovation for U.S. Stablecoins Act," aims to establish a regulatory framework for a type of cryptocurrency called stablecoins.
Despite the reassuring name, stablecoins—cryptocurrencies that promise to maintain their value relative to real-world currencies (usually the dollar)—are currently the most dangerous form of cryptocurrency. Their danger comes precisely from the fact that they "appear to be very safe."
Most people know that cryptocurrencies are highly volatile and speculative. Bitcoin, Ether, and other well-known cryptocurrencies fluctuate wildly in value daily and yearly. The original intent of stablecoins was to eliminate this volatility, but they may pose an even greater threat to the broader financial system.
The GENIUS Act (similar to the EU's Markets in Crypto-Assets Regulation passed in 2023) provides some safeguards, but these measures may actually greatly expand the stablecoin market. If—or rather, when—these stablecoins collapse, the GENIUS Act almost guarantees that the U.S. government will have to bail out stablecoin issuers and holders to the tune of hundreds of billions of dollars.
We always hear the phrase: "This time is different." In finance, this is often a harbinger of disaster. In the early 2000s, the financial world claimed to have invented a "risk-free asset" by packaging subprime mortgages into bonds (many even rated AAA).
But risk always comes at a price. Disguising high-risk assets as low-risk only allows speculators to reap the rewards while passing the consequences onto others. In 2007, these "AAA" subprime bonds collapsed, plunging the world into the worst recession since the Great Depression. Stablecoins are engaging in the same "alchemy"—turning junk into gold—and may bring about the same outcome.
Theoretically, the stablecoin you buy for $100 today should be worth $100 in the future. This design makes it appear to be a reliable way to store digital assets. Stablecoins are built to provide security and liquidity similar to bank deposits within the crypto system.
But these "stable" promises are often unreliable. In the 11 years since the birth of stablecoins, several issuers have defaulted, causing billions of dollars in losses.
Terra was once one of the top stablecoin issuers, but in a crash in May 2022, nearly $60 billion in assets evaporated. As Nobel laureate Jean Tirole said: "Stablecoins, like Money Market Funds, appear safe but may collapse under stress."
The GENIUS Act is scheduled to take effect in January 2027, with the regulatory intent of attracting investors by reducing risk and enhancing stability. But the problem is, these "guardrails" mostly protect issuers' profits and do not effectively reduce risks for consumers and taxpayers. The result may be that when stablecoins face another crisis in the future, the impact will be greater and the damage to the real economy more severe.
Stablecoin supporters argue that this type of cryptocurrency provides more advanced technology for storing and transferring funds. Bank transfers often take a long time, and international remittances are costly and cumbersome. Stablecoins seem to allow for large cross-border transfers as easily as paying a babysitter with Venmo.
This promise is not real. For legitimate transactions, cryptocurrencies are still extremely vulnerable to scams, hacking, and theft. According to blockchain analytics firm Chainalysis, nearly $3 billion in cryptocurrency was stolen in just the first half of 2025.
In 2024, the CEO of a Texas pharmaceutical company mistyped a digit when entering an address and transferred about $1 million worth of stablecoins to a stranger's account. The recipient refused to return the funds, and stablecoin issuer Circle stated it was not responsible. The company has now sued Circle.
In fact, most cryptocurrency holders do not use them for spending. A 2023 survey by the Federal Deposit Insurance Corporation (FDIC) found that only 3.3% of cryptocurrency holders use it for payments, and only about 2% use it to purchase actual goods.
The real advantage of stablecoins is that they allow asset holders to use the dollar system while avoiding U.S. regulation. Currently, about 99% of stablecoins are pegged to the dollar.
The GENIUS Act claims it will require stablecoin issuers to comply with anti-money laundering laws such as "Know Your Customer" (KYC), but only when these coins are initially issued in the U.S. How they are transferred, to whom, and where they flow afterward is basically untraceable.
For example, Tether plans to launch a new stablecoin not aimed at U.S. or EU customers, thereby completely bypassing KYC rules.
At the same time, decentralized exchanges allow people to swap stablecoins without any regulation, making it easy for unregulated coins to enter the U.S. market. Although the GENIUS Act requires reporting of suspicious transactions, most of the stablecoin ecosystem is outside the U.S., making this rule extremely difficult to enforce.
Because of these inherent risks, the stablecoin market has remained relatively small, currently between $280 billion and $315 billion, roughly the size of the 12th largest bank in the U.S. Even if the entire stablecoin market collapsed tomorrow, the U.S. financial system might be hit but could still recover.
However, Citigroup predicts that if the GENIUS Act takes effect, the stablecoin market could balloon to $4 trillion by 2030. A default of this scale could cause severe shocks to the global financial system.
Functionally, stablecoin issuers are essentially "deposit-taking institutions". They take in cash and promise to redeem at any time. Banks have deposit insurance, quarterly checks, and annual audits. The GENIUS Act abandons these regulatory tools, requiring annual audits only for large issuers with assets over $50 billion.
The GENIUS Act claims to eliminate default risk by requiring issuers to back coins with "liquid assets such as dollars or short-term Treasuries" and to disclose reserve composition monthly. This sounds reliable. But putting cash into assets with maturities of only a few hours or days yields very little.
Crypto companies spent tens of millions of dollars on lobbying and political donations to push this act, and also provided massive support to President Trump's campaign. Clearly, they are not here just to "earn a little interest."
The GENIUS Act allows the use of Treasuries with maturities up to 93 days. These bonds typically yield about 4% annually but also carry interest rate risk: when rates rise, bond values fall. For example, in the summer of 2022, the 3-month Treasury rate rose from less than 0.1% to 5.4%. If issuers sell midway, they may incur losses.
If you are a stablecoin holder, you may worry that the issuer holds bonds that are losing value. If redemption demand increases, the issuer may survive the first few redemptions but will eventually run out of funds. Once panic sets in, everyone will rush to cash out, triggering a digital-age "bank run."
Even if a traditional bank's assets shrink on paper, customers need not worry because of federal deposit insurance. Stablecoin issuers, however, have no insurance and rely solely on their assets—which fluctuate every minute. Once the market senses risk, it's too late.
Supporters of the GENIUS Act argue that it mandates asset diversification, such as holding some cash, overnight assets, 30-day assets, etc. Disclosure is also required. But this information is seriously delayed and cannot keep up with funds moving in "seconds." An issuer that appears sound in a monthly report could be insolvent a week later.
This combination of information lag, loose regulation, and lack of insurance is the perfect recipe for panic and "bank runs." Once more people start using stablecoins to store dollar assets, even a small disturbance could trigger a systemic crisis. To meet redemptions, issuers would have to sell Treasuries, dragging down the entire Treasury market—raising interest rates and hurting everyone.
Take Tether, headquartered in El Salvador, for example. Its U.S. Treasury holdings now reach $135 billion, making it the 17th largest holder of U.S. Treasuries in the world, just behind Germany. In May 2022, Tether faced market doubts about its reserves and was redeemed for $10 billion in two weeks. If it had collapsed then, the government could have stayed out. But as its scale grows, the risk can no longer be ignored.
Although the GENIUS Act prohibits certain high-risk assets, it cannot change the fundamental issue: the profits of stablecoins come from risk. Tether CEO Paolo Ardoino announced in September that the company is considering fundraising, with a potential valuation of $500 billion.
This kind of "enjoying government bailouts without paying insurance premiums" regulatory vacuum was the root cause of the 2008 money market fund crisis. That year, the federal government stepped in to guarantee $2.7 trillion in uninsured assets.
Supporters believe cryptocurrency is the currency of the future, while critics call it a scam serving criminals. Warren Buffett once said: "Bitcoin may be rat poison squared."
Currently, these controversies are irrelevant to most people. For example, when exchange FTX went bankrupt at the end of 2022, it had almost no impact on the real economy. But stablecoins are different—they are designed to be deeply tied to the real financial system.
The GENIUS Act attempts to make them new buyers of U.S. debt. The White House even said in a briefing: "The GENIUS Act will increase demand for U.S. Treasuries and strengthen the dollar's status as the global reserve currency."
The problem is: Where will this demand come from? One answer is criminals. The global "black money" market is estimated at $36 trillion, accounting for 10% of global wealth. Stablecoins provide a channel for laundering these funds.
In 2023, Binance was fined over $4 billion by the U.S. Treasury for allegedly facilitating transactions for terrorist organizations. In October 2025, President Trump pardoned Binance's founder, and there are reports that Binance will cooperate with the Trump family's crypto project.
Why did the GENIUS Act pass Congress so easily? The votes in the House and Senate were 68:30 and 308:122, respectively.
Supporters are skilled at lobbying, beneficiaries are active, and victims are apathetic. Traditional banks once thought they were unaffected because the act prohibits stablecoin issuers from paying interest. But the stablecoin industry is working hard to circumvent this restriction. Now, Goldman Sachs, Deutsche Bank, Bank of America, and others are considering jointly launching their own stablecoins.
Meanwhile, Congressional opponents like Senator Elizabeth Warren focus on the Trump family's massive crypto interests. She is not wrong. 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 result is that the Department of Justice announced in April a significant reduction in investigations into crypto scams.
This corruption is disgusting, but it is not a systemic risk. The real danger is: stablecoin issuers want to absorb massive deposits but have no guarantee of repayment ability.
History has shown: the U.S. government is unlikely to stand by if a major stablecoin defaults, yet the GENIUS Act does not give the government the tools to prevent such a crisis.
The act has not yet taken effect, so there is still time to limit the damage.
We can treat stablecoin issuers as deposit-taking financial institutions, require them to pay insurance premiums for dollar stablecoins, mandate event-driven disclosures, and require them to set up headquarters and pay taxes in the U.S. At the same time, the current expensive cross-border remittance system should be reformed to weaken the crypto industry's false advantage of "fast transfers."
After the 2008 financial crisis, investor Jeremy Grantham was asked: "What have we learned from this crisis?" He replied: "In the short term, we learn a lot; in the medium term, a little; in the long term, nothing at all."
Today, stablecoins, with the same risk structure as subprime securities, remind us that the crisis has been forgotten for too long.
In a free country, the government will not stop you from speculating. But danger only arises when speculators gamble with other people's money—which is the essence of stablecoins, and the GENIUS Act is fueling this trend.
If nothing is done, America's next financial disaster is only a matter of time. [Understand]
