<div id="readability-page-1"><div>THE fascination with cryptocurrencies shows no sign of fading. With the passage of the Guiding and Establishing National Innovation for US Stablecoins (Genius) Act in July 2025, American lawmakers added to the sense that crypto is here to stay.But look beyond the hype and an uncomfortable issue remains unresolved: Are cryptocurrencies a genuine innovation capable of serving the common good, or a speculative threat to financial and social stability?Of course, not all cryptocurrencies are alike. Unbacked ones, such as Bitcoin and Ethereum, have no underlying assets and derive their value purely from people’s belief that they have any. But backed cryptocurrencies, including stablecoins, attempt to anchor their value through holdings of real-world assets, such as US dollars and short-term government bonds.Nonetheless, the same two questions apply to both categories: Are they viable? And, if so, do they benefit society? While humility requires that we not claim certainty about the answer to the first question, the second one must be met with a resounding “no”. Crypto innovation undoubtedly has some valuable features – including blockchain-based applications, smart contracts and decentralised finance – but the proliferation of private digital assets has also widened the gap between private and social interests.To be sure, the welfare implications of cryptocurrencies are more complex for dysfunctional countries where the state expropriates individuals or companies through financial repression or other means, or uses transaction data to oppress political opponents or minorities. In these cases, crypto technically can replace US dollar banknotes and offer lower transaction and concealment costs. But this specific use case does not vindicate cryptocurrencies because other digital assets could do the same job.<h2>A pure bubble</h2>Bitcoin is the archetype of an unbacked cryptocurrency with no intrinsic value. Its valuation represents what economists call a pure bubble: it will collapse if confidence evaporates. But not all bubbles burst immediately. Gold has been trading for millennia at prices far above its “fundamental” value (which could be measured by the price that its industrial use would command if it stopped being held for speculative purposes). Yet, history offers many examples of bubbles that ended in ruin – from the Dutch tulip mania of the 1630s to the South Sea Bubble of 1720, and the recurring stock-market and real-estate crashes that have been with us ever since.Could Bitcoin become the new gold? Possibly. But its value could also fall to zero. At most, we can be confident that very few of the hundreds of thousands of cryptocurrencies that have emerged will survive. It would be folly for regulated banks or insurance companies (whose losses are often borne by taxpayers) to speculate heavily in such assets without strict capital requirements.The social damage stemming from unbacked crypto is clearer. Unlike productive risk-taking – such as research on vaccines or new technologies – speculation in digital tokens creates little public benefit and causes a variety of harms. One cost is a diversion of seigniorage (the difference between the face value of money and the cost of producing it). In traditional systems, the gains from issuing money flow to the community via the state, but with crypto, that privilege is privatised or wasted – issuers reap the windfall, while “mining” (running computations to process blockchain transactions) wastes vast amounts of energy and computing equipment.Another problem is crime. Bitcoin and similar assets are notorious for facilitating tax evasion, money laundering and illicit finance. While hard currencies have long been used for the same purposes, the ease and global reach of crypto transactions lower the barriers for wrongdoing. Then there are the implications for macroeconomic policymaking. Central banks can stabilise economies and prevent financial contagion only if they control liquidity during crises.And unbacked cryptocurrencies lack any form of investor protection, as we saw with the initial coin offering craze a few years back. Heralded as a means of liberation from the power of financial intermediaries (from venture capital funds to banks), the direct issuance of securities to savers neglects the fundamentals of finance. Dispensing with trusted, well-capitalised and reputable intermediaries to monitor projects does not make markets freer; it makes them more fragile. Technological progress should improve financial efficiency, not roll back centuries’ worth of hard-won insights.<h2>Full circle</h2>Stablecoins were conceived as a response to the volatility of unbacked crypto. By pegging their value to the greenback or other safe assets, they promise the best of both worlds: the efficiency of digital tokens and the stability of traditional money. At first glance, this seems like progress. But financial history is full of supposedly safe innovations – money-market funds, structured securities, mortgage derivatives – that sowed the seeds of later crises. Stablecoins may do the same.Proponents retort that stablecoins are fully backed by cash, bank deposits, Treasury bills or money-market funds, and that these reserves are regularly audited. Yet, recent episodes cast doubt on such assurances. Tether, the largest stablecoin, was fined for misrepresenting its reserves and has never undergone a full independent audit. Circle, whose USDC is the second-largest stablecoin, had 8 per cent of its reserves tied up in Silicon Valley Bank when that institution failed in 2023. The crisis was resolved only because uninsured depositors like Circle were bailed out with public funds.One can anticipate that the industry will eventually invest in uninsured bank deposits, riskier interest-rate bets, and so forth. Institutions constrained to hold only low-yield securities often search for yield in disguise, taking hidden risks to increase returns.Relatedly, while the Genius Act forbids issuers from paying interest on stablecoins, platforms are not bound by the rule. This loophole allows platforms to operate like banks without meeting the corresponding capital and liquidity standards. They have become yet another addition to the growing shadow banking system of institutions that rely on implicit public backing but escape prudential supervision.Politics further amplify the risks. The current US administration’s endorsement of crypto is driven by a mix of personal financial interest, ideology, and the need to reinforce global demand for US dollars to finance America’s trade deficit. President Donald Trump has appointed regulators sympathetic to the industry to key oversight roles, and the traditionally pro-industry Commodity Futures Trading Commission, rather than the Securities and Exchange Commission, is likely to take the lead on regulation. All this ensures a light-touch approach that should worry other countries. If they attempt to regulate US dollar-denominated stablecoins strictly, the US may accuse them of protectionism, as it has already done in response to the European Union’s regulation of Big Tech under its digital-market rules.Even when reserves are genuine, small doubts can trigger big runs, as when Lehman Brothers’ collapse in 2008 led to mass redemptions from US money-market funds, forcing the Treasury and Federal Reserve to intervene. The same thing happened in 2020, when the start of the Covid-19 pandemic triggered a “dash for cash”. A similar dynamic could easily occur with stablecoins if investors fear that the backing assets are insufficient or illiquid. Unfortunately, the Genius Act remains vague about stablecoin redemption rules.Finally, stablecoins’ model of “narrow banking” – holding only safe assets such as Treasuries – has systemic implications. If deposits migrate from banks to stablecoins, who will provide loans to businesses and households? By borrowing short and lending long, traditional banks perform the vital function of maturity transformation. Their activities are socially useful, and the risks are made tolerable by capital requirements, supervision and deposit insurance. Stripping banks of deposits without replacing these safeguards would limit credit creation, increase financial vulnerability, and weaken the real economy.<h2>The future of money</h2>That said, stablecoins reveal a legitimate demand for payments that are faster, cheaper and programmable (meaning they can execute automatically when contractual conditions are met). The competition to meet this demand pits three forms of digital money against one another: decentralised cryptocurrencies; privately sponsored currencies issued by corporations, such as Facebook’s short-lived Libra project; and state-backed digital versions of national money – which may take the form of public-private partnerships (Brazil’s Pix, India’s Unified Payments Interface) or a central bank digital currency.Sadly, if the US Digital Asset Market Clarity Act passes, the country will have handcuffed its central bank and prevented it from competing with privately provided money. This is unfortunate because central banks do hold some competitive advantages. They define legal tender, can mandate participation by banks and fintech operators (as in Brazil and China), and ensure universal access. Above all, they embody the trust that our financial institutions badly need.While the design of state-backed digital versions of national money raises many complex questions, a few key principles are readily identifiable. First, they must offer inclusive, user-friendly, very low-cost transactions for households, companies and government entities alike. Second, they must encourage private-sector innovation by opening APIs (application programming interfaces) that third-party developers can build on.Third, they must carry over existing laws on the privacy of bank accounts. Fourth, they must avoid disintermediation because the state has very limited competence to lend to small and medium-sized enterprises or supply a range of financial services. Finally, a cautious approach would limit individual holdings and treat them as insured bank deposits, since another longstanding economic principle is that not all deposits in institutions backed directly or indirectly by the state are meant to be insured or demandable.Public oversight, prudential regulation and clear accountability are indispensable. Innovation should enhance economic fundamentals, not erode them. Speculative unbacked tokens and lightly regulated stablecoins must be contained before they threaten financial stability and become part of the shadow banking sector.The future of money must be shaped by competition between private ingenuity and public purpose, not by rent seeking and dangerous speculative bubbles. If we remember that finance must serve society, not the other way around, the digital age of money can yet be a source of progress rather than peril. PROJECT SYNDICATEThe writer, the 2014 Nobel laureate in economics, is professor of economics at Toulouse Capitole University</div></div>

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The ongoing fascination with cryptocurrencies raises questions about their role in society. The recent passage of the Genius Act suggests crypto is here to stay, but concerns remain about their viability and societal benefits. Unbacked cryptocurrencies like Bitcoin are seen as speculative bubbles, while backed stablecoins aim for stability but may still pose risks. The potential for crime, lack of investor protection, and implications for macroeconomic policy further complicate the landscape. Ultimately, while crypto innovation has merits, its societal impact is contentious, with many arguing it does not serve the common good.

- The cryptocurrency trend remains strong following the passage of the U.S. Genius Act in July 2025, but critical questions about their societal benefits versus risks to financial stability persist.  
- While stablecoins attempt to bridge digital efficiency with traditional stability, their underlying structures reveal potential vulnerabilities and the likelihood of exacerbating financial fragility.  
- Ultimately, the evolution of digital currencies should prioritize public interest and financial stability over speculative investments, ensuring that innovation serves societal needs.

Is crypto an opportunity or a threat?