The Year Trump Embraced Cryptocurrency

Original Title: What Trump's Embrace of Crypto Has Unleashed
Original Authors: David Yaffe-Bellany, Eric Lipton, The New York Times
Translation by: Peggy, BlockBeats

Editor’s Note: From the political endorsement of the "crypto president" to the rapid spread of DAT treasury companies, tokenized stocks, and high-leverage trading, the crypto industry is advancing towards the boundaries of traditional finance and public policy at an unprecedented pace. New products, structures, and capital pathways are continuously emerging, portrayed on one hand as technological breakthroughs that enhance efficiency and reshape financial infrastructure, while on the other hand accumulating concerns regarding lending, governance, and risk transmission.

As regulatory attitudes shift towards leniency and capital accelerates into the market, this experiment driven by policy, capital, and technology is gradually evolving from internal industry issues to structural topics that may impact the broader financial system.

Here is the original text:

This summer, a group of executives pitched a business plan to Wall Street financier Anthony Scaramucci, who briefly served as an advisor to President Trump.

They hoped Scaramucci would join a publicly traded company with a rather peculiar strategy: hoarding cryptocurrency to make the business more attractive to investors.

"I really didn't need to be sold on it," Scaramucci said. Shortly thereafter, he was publicly announced as an advisor to three previously obscure companies that employed the same strategy. "That conversation was quite casual."

However, this enthusiasm did not last long. This fall, the crypto market plummeted, and the stock prices of the three companies Scaramucci was involved with all fell sharply, with the worst performer dropping over 80%.

These companies are part of a wave of crypto enthusiasm driven by Trump. He has pushed the relatively marginal world of digital currencies into a significant position in the global economy. He claims to be the first "crypto president," ending regulatory crackdowns on crypto companies, publicly promoting crypto investments from the Oval Office, signing multiple pro-crypto legislations, and even launching a meme coin called $TRUMP.

Now, the consequences of this positive endorsement are gradually becoming apparent.

This year, a series of new crypto businesses that continuously break boundaries have emerged, exposing more people directly to the highly volatile world of virtual currencies. Currently, over 250 publicly traded companies have begun hoarding cryptocurrency, with price fluctuations of these digital assets mirroring those of traditional investments like stocks and bonds.

Meanwhile, a number of companies have launched new products that make it easier to allocate crypto assets within brokerage accounts and retirement plans. Industry executives are also lobbying regulators to introduce tokens representing shares of publicly traded companies, which would be traded in a crypto-driven "stock market."

This wave of experimentation has already shown signs of trouble. In the past two months, the prices of major cryptocurrencies have plummeted, causing companies that hold significant amounts of related assets to fall into freefall. Other new projects have also raised warnings from economists and regulators, who point to the accumulating risks.

One of the core concerns is the rise in lending. As of this fall, publicly traded companies have purchased crypto assets through large borrowings; meanwhile, the total amount of bets by investors on future coin prices has exceeded $200 billion. These transactions often rely on leverage, which can yield enormous profits if the direction is correct, but can also lead to severe losses if mistakes are made.

The latest products launched in the industry have also connected crypto assets with the stock market and other parts of the financial system, increasing the possibility of "contagion," where a crypto crisis could spill over into the broader economy.

"The lines between betting, speculation, and investing have largely disappeared," said Timothy Massad, who served as Assistant Secretary for Financial Stability at the U.S. Treasury after the 2008 financial crisis. "This worries me greatly."

White House Press Secretary Karoline Leavitt stated that Trump is making the U.S. the "world's crypto capital" by promoting innovation and economic opportunity.

Crypto industry executives believe these new businesses demonstrate the potential of the technology to reshape the outdated financial system. They view market volatility as a source of potential profit.

"The risks are higher, but so are the potential rewards," said Duncan Moir, president of 21Shares, a company that issues various financial products to make investing in crypto assets easier. "Our job is to bring these investment opportunities to more people."

This entire experiment has thrived in an unprecedentedly friendly regulatory environment for crypto companies. After years of litigation with the industry, the U.S. Securities and Exchange Commission (SEC) established a crypto task force this January and has held dozens of meetings with companies seeking new rules or product approvals.

An SEC spokesperson stated that the agency is working to "ensure that investors have sufficient information to make informed decisions."

Many of these new companies have some connection to the Trump family's expanding crypto business empire, further blurring the lines between business and government.

This summer, the management of World Liberty Financial, a crypto startup under Trump, announced it would join the board of publicly traded company ALT5 Sigma. The company previously operated a recycling business and now plans to raise $1.5 billion to purchase digital currencies.

"Tsunami"

The crypto community has dubbed this high-risk, high-emotion era brought about by Trump's new administration as "DAT Summer."

DAT stands for "Digital Asset Treasury," referring to publicly traded companies whose core goal is to purchase as much crypto as possible. According to crypto consulting firm Architect Partners, just under half of these newly established companies have chosen Bitcoin, the most well-known cryptocurrency, as their primary asset; however, dozens of companies have announced plans to hoard lesser-known coins, such as Dogecoin.

Since the beginning of this year, new digital asset treasury companies have been established every month, showing a clear upward trend.

These projects often follow a relatively simple operational path: a group of executives first identifies a lesser-known, publicly traded company—such as a toy manufacturer—that intends to build a crypto asset reserve. The team then collaborates with the company to raise millions of dollars from wealthy investors, using those funds to purchase digital currencies.

The core purpose is to indirectly expose investors to the price fluctuations of crypto assets by allowing them to buy assets that "look like traditional stocks." This is potentially a profitable business. Some investment funds and asset management firms have been reluctant to directly buy cryptocurrencies, partly due to the complex and costly custody processes, which frequently become targets for theft and hacking.

By investing in DAT (Digital Asset Treasury companies), fund managers can outsource these cumbersome operations. However, it has proven that DATs also carry significant risks. Many of these companies were hastily established or managed by executives lacking experience in running publicly traded companies. According to Architect Partners, these companies have collectively announced plans to borrow over $20 billion to purchase crypto assets.

"Financial crises often start with leverage," said Corey Frayer, a former crypto advisor to the SEC. "And what is being created now is a whole lot of leverage."

In fact, some companies have already fallen into operational difficulties or management crises, causing investors to incur losses. For example, Forward Industries, a treasury-type company, had amassed a large quantity of a token called Solana. In September, after raising over $1.6 billion from private investors, its stock price soared to nearly $40 per share.

Among the investors was Allan Teh from Miami, who invested $2.5 million in Forward on behalf of a family office.

"At the time, everyone thought this strategy would work, and asset prices would keep rising," Teh said.

But then the market corrected, and Forward's stock price dropped to $7 per share this month. The company subsequently announced plans to spend up to $1 billion on stock buybacks over the next two years, but this move did not stop the stock price from continuing to decline.

"The music has stopped. Now I'm starting to hesitate about whether I should exit," Teh said, having already lost about $1.5 million. "How much more loss am I going to have to bear?" Forward declined to comment.

The surge of DATs has raised significant concerns at the SEC. "Clearly, there are worries here," SEC Chairman Paul Atkins said last month in an interview at a crypto conference in Miami. "We are closely monitoring."

However, behind this emerging corner of the crypto world is a powerful supporter—the Trump family.

In August, World Liberty Financial announced that its founding team—including President Trump's son Eric Trump—would join the board of publicly traded company ALT5 Sigma. The company plans to hoard WLFI, a token issued by World Liberty itself. (Currently, Eric Trump is listed as a strategic advisor and observer.)

This arrangement seems poised to quickly bring profits to the Trump family. According to a revenue-sharing agreement published on World Liberty's official website, every time WLFI tokens are traded, a business entity under the Trump family can receive a portion of the profits.

However, shortly thereafter, ALT5 Sigma's business conditions began to deteriorate. The company disclosed in August that executives from one of its subsidiaries had been found guilty of money laundering in Rwanda, and the board was reviewing other "previously undisclosed issues." Soon after, ALT5 Sigma announced the suspension of its CEO and severed ties with two other senior executives.

Since August, the company's stock price has dropped by 85%. An ALT5 Sigma spokesperson stated that the company remains "optimistic about the future."

Flash Crash

Much of the recent turmoil in the crypto market can be traced back to a night in October.

Under Trump's public support, the crypto market had been on a steady rise for most of this year. However, on October 10, the prices of Bitcoin and Ethereum suddenly plummeted, and dozens of other tokens followed suit.

This was a typical "flash crash," with prices collapsing sharply in a very short time.

The immediate trigger was Trump's announcement of new tariffs on China, which sent shockwaves through the global economy. However, the key reason why crypto assets were particularly hard hit was the high level of borrowing in the market.

On crypto trading platforms, traders can use their assets as collateral to borrow cash or leverage further to place larger bets on digital currencies. According to crypto data firm Galaxy Research, in just the third quarter, the global borrowing based on crypto assets increased by $20 billion, reaching a record total of $74 billion.

The most aggressive and riskiest crypto trading typically occurs in overseas markets. However, in July, the largest U.S. crypto exchange, Coinbase, announced it would launch an investment tool allowing traders to borrow up to 10 times their holdings to bet on the future prices of Bitcoin and Ethereum.

Coinbase launched this product against the backdrop of federal regulators retracting previous guidance that restricted such high-leverage borrowing, making these operations possible again in the U.S.

The drop in October did not trigger a systemic disaster that would destroy the industry like in 2022, when several large crypto companies went bankrupt. However, it provided a clear preview of how a crisis that could engulf the entire crypto world might unfold.

Mechanically, borrowing amplifies losses during market downturns. When prices fall, exchanges are forced to sell customers' collateral assets—this process is known as "liquidation," and it often further depresses prices.

According to industry data tracking firm CoinGlass, on October 10 alone, at least $19 billion in leveraged crypto bets were forcibly liquidated, affecting 1.6 million traders. Liquidations were primarily concentrated on overseas exchanges, including Binance, OKX, and Bybit.

This crash triggered a surge in trading volume, and some traders encountered technical issues while trying to transfer funds on major exchanges. Coinbase stated it had noticed some customers "may have experienced delays or performance degradation" during trading.

Derek Bartron, a software engineer and crypto investor from Tennessee, said his Coinbase account was temporarily frozen. "If I wanted to close my position, I couldn't do it at all," he said. "It felt like Coinbase had almost 'locked' everyone in their accounts, losing the ability to access their funds and being forced to ride the roller coaster."

Bartron reported that in the following days, he lost about $50,000 in crypto assets, partly because he couldn't sell his holdings at the ideal time.

A Coinbase spokesperson responded that the company provides automated risk management tools, "which operated normally, and the exchange remained operational throughout the event."

A Binance spokesperson admitted that due to a significant surge in trading volume, the platform "did encounter some technical issues" and stated that measures had been taken to compensate users.

Experiment

One night this summer, crypto entrepreneurs Chris Yin and Teddy Pornprinya attended a black-tie formal reception at the Kennedy Center in Washington.

It was a high-profile social event. Yin wore a tailcoat he had bought the night before and introduced himself to Vice President JD Vance, a former Silicon Valley investor; he and Pornprinya also spoke with Treasury Secretary Scott Bessent, a former hedge fund manager; the two even took a photo with Trump, who gave a thumbs-up to the camera.

These two entrepreneurs are paving the way for another bold plan proposed by the industry this year: extending the underlying architecture of crypto technology to other financial sectors.

For months, their startup Plume has been seeking permission from U.S. regulators to launch an online platform that allows users to purchase digital tokens representing "real-world assets"—these assets could be a company, a piece of farmland, or even an oil well.

In overseas markets, Plume's customers can purchase "shares" of such products and trade them like other tokens. However, this service, known as "tokenization," exists in a legal gray area in the U.S. The reason is that U.S. securities laws, which have been in place for decades, impose extremely strict regulatory requirements on any form of "share" sales.

The core purpose of these rules is to protect investors through mandatory information disclosure, requiring stock issuers to publicly disclose detailed operational, financial, and risk information. As a result, tokenizing and trading real-world assets face much higher compliance hurdles in the U.S. than in overseas markets.

This year, tokenization has become one of the hottest concepts in the crypto industry. Industry executives believe that "tokenized stocks" can make stock trading faster and more efficient, creating a 24/7 global market that allows shares to circulate continuously around the world. Major U.S. exchange Kraken has already provided a crypto-based stock trading market for customers overseas.

In the crypto world, transactions are recorded on a public ledger, making it more transparent compared to traditional finance—so industry executives claim. "It is traceable and auditable," said Kraken CEO Arjun Sethi. "This is almost the opposite of risk."

Representatives from Kraken and Coinbase have met with the SEC to discuss regulatory rules for tokenized assets; meanwhile, Plume is seeking a viable legal pathway to expand its business into the U.S. market.

However, this race to "get ahead" has raised concerns among current and former regulators, as well as heavyweight executives in traditional finance. In September, economists from the Federal Reserve pointed out that tokenization could transmit financial shocks from the crypto market to the broader economic system and "weaken policymakers' ability to maintain the integrity of the payment system" during periods of stress.

Despite this, SEC Chairman Paul Atkins expressed a positive attitude towards tokenized stocks, calling it a significant technological advancement. In May, he stated at a tokenization industry roundtable: "The commission has considerable discretion under the securities law framework to make appropriate arrangements for the crypto industry, and I intend to push this forward."

To secure a favorable position, Plume's founders Chris Yin and Teddy Pornprinya have taken multiple approaches: they met with the SEC's crypto task force in May; provided illustrative content for a White House crypto report; and established Plume's U.S. headquarters on the 77th floor of the Empire State Building.

This summer, at the black-tie reception in Washington, Trump's core aides seemed to recognize these two founders.

"They know Plume," Pornprinya said. "Everyone has heard of us."

A few weeks later, Plume announced a potential key connection: establishing a business partnership with Trump family's crypto company World Liberty.