There is an exploding and innovative crypto market structure in this country that has been  accelerated by President Trump’s asserted promise to make America “the crypto capital of the world” by adopting new “pro-innovation” policies toward digital assets and other blockchain technologies. These policies arguably position the U.S.  not only to reinforce its preeminent position in traditional financial services but also to emerge as the global leader of a new financial world based in financial technology. However, this positive development must be tempered by the fact that these pro-growth policies have not been accompanied  by the adoption of a comprehensive and reasonable legal and regulatory framework governing this quickly growing financial ecosystem and may sow the seeds of a future financial crisis.

To date, regulation of crypto has consisted of a fragmented, overlapping, and at times inconsistent system of  more than 60 federal and state agencies, emerging after the invention of Bitcoin much like the Hindu folktale of blind men arguing about the shape of an elephant based on the part of the elephant they touched. Government and regulatory authorities each began reaching out to regulate crypto activity that appeared to share characteristics of traditional financial (“tradfi”) products, services, and investments they already oversaw across a wide range of areas of law, including securities, banking, commodities, money transmission, commercial law, anti-money laundering, cybersecurity, data breach, tax, and even constitutional law—typically applying long-standing laws, regulations, judicial precedent, and policies that never contemplated the existence of digital assets.

This ad hoc system exhibits some of the worst features of past U.S. financial crises and scandals—namely, failure to coordinate regulation and policy in favor of parochial agency turf considerations, lack of a central regulatory oversight authority, and, at times, a failure to provide appropriate and tailored supervision. It has also produced a burdensome patchwork of regulatory requirements that can stifle innovation. No regulatory agency is “in charge” with comprehensive and consolidated oversight of crypto-regulated activities. Nor is there any formal body of federal and state regulators required to meet regularly to coordinate, integrate, and resolve national crypto regulatory policy issues or emerging systemic risks.

Against this backdrop, the implications of a digital asset market meltdown for U.S. and global financial stability are rapidly increasing as crypto assets continue to grow and become embedded in the broader financial system, further complicating oversight. In 2022, the crypto market experienced a major collapse—the so-called “crypto winter”—when a sharp market decline in a roughly $1.8 trillion global crypto market forced several leading crypto trading exchanges into bankruptcy and caused accountholders to lose billions of dollars. The crisis also exposed an epic financial scandal when FTX, then the world’s largest crypto exchange, collapsed amid allegations of fraud, market manipulation, serious governance failures, and minimal regulatory oversight at its offshore headquarters. However, while crypto winter was widely publicized, its financial contagion remained largely confined to a relatively new generation of crypto-native exchanges.

The stakes have changed dramatically since then. By late last year—less than two years after crypto winter—the total market capitalization of digital assets had more than doubled to approximately $4.13 trillion. More importantly, the once-disruptor crypto industry is now converging with Wall Street, which initially viewed crypto as an existential threat to the traditional financial services industry. Major financial institutions once feared substantial losses of market share and fee income to new competitors using blockchain-based payment and investment technologies.

Today, fueled by renewed pro-crypto policies, major Wall Street firms have entered—and accelerated—the crypto market surge, offering a wide range of crypto-based traditional financial products, services, and investments. These include publicly traded Bitcoin investment funds offered by Fidelity, BlackRock, Invesco, and others; crypto investments in wealth management accounts (Morgan Stanley); crypto trading and custody services (Vanguard and Fidelity); authorization for Bitcoin and related derivatives to trade on U.S. commodities exchanges; relaxed Department of Labor fiduciary guidance allowing 401(k) retirement plan exposure to crypto assets; authorization by the Federal Reserve, OCC, and FDIC for banks to offer crypto products without prior regulatory approval; proposed national fintech bank charters for crypto exchanges; and passage of the GENIUS Act, supported by the Trump administration, which establishes a new market structure for stablecoins backed by U.S. dollars, government securities, and other liquid assets—hailed by Wall Street as potentially transformative for global payments.

It has been said that the Chinese symbol for crisis also signifies opportunity. The converse may be true for today’s exploding crypto market. Continued growth in digital assets presents mounting policy challenges: how to foster responsible innovation in financial technology while simultaneously pursuing a coordinated, whole-of-government regulatory strategy capable of preventing the next—and potentially far more dangerous—financial crisis.

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V. Gerard “Jerry” Comizio is a Professor of Law at American University Washington College of Law, where he teaches and writes on financial regulation, banking law, and digital assets. His scholarship is available on Google Scholar, and his recent commentary on crypto markets has appeared in CNN and Newsweek. Faculty bio | Scholarship