Is Trump Right in Endorsing Cryptos?

There is a raging debate in financial circles if US President Donald Trump's open embrace of cryptos is right.

The discussions are about the conflict of interest or ethical conundrum and whether this sets the stage for a financial crisis.

Francois Villeroy de Galhau, a member of the Governing Council of the European Central Bank, warned that the United States' encouragement of cryptocurrency and non-bank financing could trigger the next financial crisis.

In an interview with La Tribune Dimanche , a French publisher, the ECB member said, "The United States risks sinning through negligence."

He added, "Financial crises often originate in the United States and spread to the rest of the world. By encouraging crypto-assets and non-bank finance, the American administration is sowing the seeds of future upheavals."

He said there is no danger of a banking catastrophe in the European Union. Villeroy also noted that supervision was better protected in the euro area.

In the interview, Villeroy also mentioned that Europe has to "build a powerful savings and investment union, capable of attracting international investors to our currency" and that the euro should play a larger role on the global stage to counter any imbalance or crisis coming out of the US.

Trump's U-Turn To Embrace Cryptos

During his campaign last year, Trump openly backed cryptocurrency and embraced the sector's money for campaigning.

Since taking office, he has authorized the establishment of a Strategic Bitcoin Reserve and an additional reserve for other digital assets by an executive order.

Since former Chair Gary Gensler resigned ahead of Trump's inauguration, the SEC has cancelled over a dozen lawsuits against digital asset companies.

In a report , Grant Thornton said that US regulatory perspectives significantly transitioned to favour digital assets during the second Trump administration.

The research noted that this had generated a renewed impetus for cryptocurrency legislation, encompassing stablecoins. Trump enacted an executive order designating cryptocurrency as a national priority and endorsing "the responsible development and utilization of digital assets, blockchain technology, and associated technologies across all sectors of the economy."

Banking Ambitions for Crypto & Fintech Firms

There is another trend in the US, which directly results from Trump's deregulation-tilted policies.

More than six CEOs from the financial technology and cryptocurrency industries have spoken out about how their companies are trying to formalize their status as state or national banks so that they may take advantage of the Trump administration's more business-friendly policies.

Companies looking to grow and establish trust with clients perceived a window of opportunity to obtain licenses that regulators were hesitant to grant before Trump took office.

The number of people talking about and getting ready to bank charters has skyrocketed.

Although becoming a bank subjects an entity to extra regulatory scrutiny, there are situations where the cost of capital and doing business can decrease.

In addition, it boosts a company's credibility in the eyes of consumers.

In addition to opening doors to additional clients and making a public business announcement on Monday, the Office of the Comptroller of the Currency said that fintech startup SmartBiz had been approved to buy Centrust Bank, a community bank in Chicago.

This acquisition will grant SmartBiz a national bank license.

The trend of fintech firms obtaining bank charters is expected to persist, as this is the first such clearance since 2021.

S&P Global reports that in 2023, US regulators authorized a mere four applications for new bank licenses, marking a dramatic increase in activity following a significant decline in the number of charters granted.

In a research paper, KPMG said the institutional use of crypto assets fosters innovation in fundamental banking products and services, including custody, brokerage, trade clearing, settlement, payments, and lending.

The research noted that a new operational infrastructure for banking is concurrently growing, establishing a foundation for resilience and growth in a rapidly evolving business.

KPMG said the paper seeks to assist business and technology executives in the banking sector in seizing possibilities within the expanding cryptocurrency market by transforming processes and providing new, reliable, transparent, and auditable crypto services and solutions.

The note examined three promising, creative cryptocurrency applications and the essential technological and operational components that support a successful cryptocurrency infrastructure for contemporary banking institutions.

What are the Challenges?

Although these applications could be processed quickly, experts agree that the stringent requirements for bank charters are essential for ensuring financial stability.

The typical amount needed to establish a new bank is $20–$50 million.

Obtaining funding and adhering to anti-money laundering regulations and the Bank Secrecy Act are among the most significant obstacles that businesses face while seeking charters.