Cryptocurrency Contender: Doge versus Dubious - Could Lax Regulation Boost Crypto Access for the Public?
The crypto industry is at a crossroads with the announcement of Donald Trump's push for extensive deregulation, raising concerns about its potential impact on investor protections, market stability, and overall equity.
A significant concern is the increased risk of fraud and market manipulation. With reduced oversight, business practices may become less scrutinized, potentially leading to an increase in scams, pump-and-dump schemes, and other fraudulent activities. The CLARITY Act, a proposal that would allow major tech firms to issue their own stablecoins, further complicates the regulatory landscape and oversight mechanisms.
Deregulation could also amplify volatility and instability within the crypto market. The explicit encouragement of crypto-backed mortgages and the lack of checks on exchanges and trading platforms could lead to operational failures, insolvencies, and cascading failures in the sector. This, in turn, could spill over into the broader financial system if the value of cryptocurrencies plummets.
The combination of deregulation and government endorsement may fuel speculative behavior, leading to more frequent and larger asset bubbles. This has historically been the case in unregulated financial markets. The crypto industry in the U.S. is already characterized by significant leverage, opaque pricing, and interconnected platforms, making it more susceptible to booms and busts.
Other potential consequences include concentration, regulatory arbitrage, and wealth inequality. Allowing large technology companies to issue stablecoins increases the risk of monopolistic practices, while regulatory gaps could lead firms to exploit lax oversight in jurisdictions with less stringent regulations. Furthermore, the deregulatory push stands to disproportionately benefit established crypto billionaires and large platforms, potentially accelerating wealth concentration in the sector.
| Area | Potential Consequence | Description | |---------------------|---------------------------------------|-----------------------------------------------------------------------------| | Fraud | Increased risk | Less oversight heightens opportunities for scams and market manipulation[3] | | Instability | Amplified volatility | Crypto-backed loans, less oversight, and corporate coins increase risk[2][3]| | Speculative Bubbles | More frequent, larger bubbles | Government endorsement and deregulation may fuel speculation[3][4] | | Ecosystem Effects | Concentration, arbitrage, inequality | Big Tech stablecoins, regulatory gaps, and billionaire gains dominate[3] |
Peter Grosskopf, a software developer and founder of several regulated companies, advocates for thoughtful and meaningful regulation in the crypto industry. His column "Kettenbrief" is published exclusively on Payment & Banking since 2025, where the team consists of founders, investors, advisors, and editors on a mission to deliver deeper insights and actively shape the industry.
It is crucial to strike a balance between promoting innovation and ensuring investor protection, consumer rights, and market stability. Regulations should be implemented once the relevance and scale of the technological innovation are clear. Without rules for trading cryptocurrencies, dubious projects, Ponzi schemes, and illegal financial transactions could become prevalent, as demonstrated by the $TRUMP Token and recent cryptocurrency crashes such as FTX, Terra Luna, and others that have harmed millions of investors and shaken confidence in the sector.
These issues could have broader economic impacts, especially as traditional financial markets become increasingly intertwined with the crypto sector. It is essential to consider the potential consequences of deregulation and work towards a regulatory framework that enables innovation while protecting consumers and maintaining market stability.
- In the context of the crypto industry's deregulation, increased risk of fraudulent activities, such as scams and pump-and-dump schemes, might occur when business practices become less scrutinized.
- With reduced oversight, investing in the crypto market might lead to amplified volatility and instability, further complicating the regulatory landscape, as the potential consequences include operational failures and insolvencies.
