Many people may not be safeguarded from financial manipulation, wrongdoing, and burst bubbles if he loosens restrictions.
All eyes are on the cryptocurrency markets as the US gets ready for Donald Trump’s inauguration on January 20. The cryptocurrency world is eagerly awaiting Trump’s fulfillment of his campaign pledge to make the US the “crypto capital of the planet” after the price of Bitcoin hit $100,000 (£81,917) for the first time ever in December 2024. According to some projections, the price of Bitcoin in 2025 may reach anywhere from $78,000 to $250,000.
Beyond cryptocurrency payments, blockchain technology has several uses in supply chain and logistics, for instance. However, the majority of public attention is drawn to the price spikes of “meme coins,” Ethereum, and Bitcoin. Their values are still mostly driven by speculative demand and the possibility of exceptional returns, which are uncommon in other financial markets.
Rather than believing in the asset’s actual or underlying value, investors are frequently driven by the possibility of making quick money. Speculative demand for meme coins is mostly fueled by community fervor and social media culture, with no attention paid to the project’s long-term viability or the usefulness of the underlying technology.
Institutional interest in cryptocurrencies has grown as a result of hopes of a more favorable regulatory environment under the Trump administration. By joining the crypto derivatives market, big players like BlackRock are boosting liquidity and attracting even more investors. Higher adoption and increased acceptability of crypto assets are demonstrated by this industry’s and politics’ support for cryptocurrencies. However, the speculative character of cryptocurrency assets raises questions about whether political support could create a bubble akin to the dotcom bubble of 1998–2000.
When asset prices significantly surpass their intrinsic values and cease to represent real dangers, financial market bubbles arise. When these bubbles burst, they may cause connected securities to fall, even in industries that are not directly related to the afflicted assets.
Along with other authors, I conducted research on companies that, without altering their business models, rebranded with cryptocurrency-related names in an attempt to increase their stock prices. These businesses were vulnerable to infection from the larger crypto ecosystem because of this flimsy relationship. Investors are likely to sell these stocks quickly at the first hint of bad news or a crisis in the cryptocurrency market if they did not look into whether these companies had used blockchain technology.
Other businesses are becoming more vulnerable to the hazards of a cryptocurrency market crash, like those brought on by the 2022 crashes of Terra Luna and FTX, as a result of the expanding institutional engagement, which includes banks and investment management firms. A prominent illustration of how interrelated weaknesses in technology, venture capital, and speculative markets can destabilize banks, especially those with concentrated exposure to high-risk industries, is Silicon Valley Bank’s (SVB) 2023 bankruptcy. The risk of contagion is increasing in 2025 compared to the early years, when cryptocurrency marketplaces were more isolated.
In both directions, contagion spreads. Circle, the cryptocurrency corporation that issues the well-known stablecoin USDC, revealed that it has $3.3 billion in SVB reserves after SVB crashed. Because markets were concerned that the corporation would experience liquidity problems that would prevent USDC from being redeemed for US dollars, USDC momentarily lost its peg to the US dollar. Concerns over the entire stability of the financial system are raised by this incident, which shows how the stronger ties between the crypto and traditional banking sectors enhance risks in both.
Meme coins, which are only fueled by social media hype and celebrity endorsements, are much more vulnerable to speculative bubbles than ostensibly stable cryptocurrency assets like USDC, Tether, and Terra Luna, which are not immune to depegging or collapse.
Elon Musk is a Trump ally who has supported other meme coins on Twitter and X. The billionaire recently changed his name on X to “Kekius Maximus,” which caused the price of the corresponding token, Kekius, to soar by more than 700%. The BBC is looking into social media personality Logan Paul for promoting many meme coins on his YouTube channel. Paul says he has done nothing wrong.
A major element of pump-and-dump schemes, which include inflating the price of a coin through hype or sometimes even misleading information (“pump”) and then selling off large holdings at the peak, leaving other investors with losses as the price crashes (“dump”), is the promotion of cryptocurrencies, especially by prominent figures. There are claims that Paul and other celebrities have hidden financial stakes in meme currencies. In particular, if there are plans to sell the asset later, celebrities should not encourage their followers to invest in cryptocurrencies without openly revealing their financial participation, as this could result in losses for their followers.
The goal of financial liberty, which includes facilitating peer-to-peer transactions free from the influence of financial intermediaries or central banks and encouraging more financial freedom, is at the heart of the cryptocurrency movement. Ironically, though, cryptocurrency speculators frequently naively believe the views of well-known people on social media, making investments in risky, speculative assets that frequently have devastating outcomes for investors. Many inexperienced investors lost their money and, in some cases, their whole life savings during the 2022 crypto market meltdown, which had a severe effect on their emotional and physical well-being.
The US financial market watchdog, the Securities and Exchange Commission (SEC), has opened many investigations against celebrities who endorse cryptocurrencies without revealing their financial stake in the ventures. But Gary Gensler, the former chairman of the SEC, has resigned, and Trump plans to choose Paul Atkins, a well-known cryptocurrency enthusiast, as the agency’s chair.
The cryptocurrency community would applaud such reforms since they might increase the value of crypto assets and increase their earnings. It is also troubling because it may alter the way authorities perceive and respond to insider trading and market manipulation that occurs in cryptocurrency markets through social media. Consumers may be completely safeguarded from monetary losses if the SEC does nothing in 2025, particularly when
The US financial market watchdog, the Securities and Exchange Commission (SEC), has opened many investigations against celebrities who endorse cryptocurrencies without revealing their financial stake in the ventures. But Gary Gensler, the former chairman of the SEC, has resigned, and Trump plans to choose Paul Atkins, a well-known cryptocurrency enthusiast, as the agency’s chair.
diminish the allure of cryptocurrency assets.
FAQ
Bitcoin’s popularity is driven by speculative demand, with many investors hoping for quick profits. However, this speculative nature often overlooks security concerns, leaving individuals vulnerable to financial manipulation, wrongdoing, and market bubbles, especially in a less-regulated environment.
Trump’s promise to make the US the “crypto capital of the planet” may result in a more favorable regulatory environment. This could encourage institutional interest in cryptocurrencies, but it also raises concerns about speculative bubbles and the potential risks of market manipulation.
A cryptocurrency market bubble occurs when asset prices exceed their intrinsic value, driven primarily by speculation. When these bubbles burst, they can cause a significant downturn in the market, affecting not only cryptocurrencies but also related industries and securities.
Celebrities endorsing cryptocurrencies, particularly meme coins, often contribute to speculative bubbles. Their influence can inflate the prices of these assets, causing a “pump-and-dump” scenario, where prices rise due to hype but crash when the celebrity sells off their holdings.
The SEC is responsible for investigating market manipulation and insider trading in the cryptocurrency space. However, with potential leadership changes and a more crypto-friendly environment under Trump, the SEC’s approach to regulating market activities could shift, raising concerns about investor protection in the future.
