by Calculated Risk on 8/27/2025 01:16:00 PM
Two weeks ago I wrote The Next Financial Crisis. I noted:
The key to preventing a financial crisis is to keep the non-regulated (or poorly regulated) areas of finance out of the financial system.
Currently the most obvious non-regulated area of finance is cryptocurrency. And that leaves us with two choices to prevent this “financial rat poison” from leading to another financial crisis:
1. Keep crypto out of the financial system, or
2. Regulate crypto.
Keeping crypto out of the financial system could range from banning it outright, to just prohibiting financial institutions from holding or lending against crypto holdings (including mortgage lending). Unfortunately, the current administration has embraced crypto.
Regulation is the alternative. If crypto is an “asset”, then it should be registered with the SEC (with quarterly filings). If it is a currency, the issuer should also be required to register with the SEC and provide quarterly updates on the amount in circulation, the mechanics of the scheme, and list all the backing assets. Then lenders could be allowed to the lend up to a percent of the backing assets.
For example, for Bitcoin, the original issuer should file quarterly with the SEC. If the backing assets amount to $0.01 per coin (just a guess), then lenders could lend up to a percentage of $0.01 for each Bitcoin.
These are the two choices to avoid a financial crisis.
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