TrumpStablecoin
|7 min ReadGENIUS Act: New Crypto Law Risks Massive Financial Crash
Jax Morales
Senior Analyst
Published
Jan 16, 2026
On July 18, President Donald Trump signed a tremendous new law with a beautiful name: the GENIUS Act. It stands for Guiding and Establishing National Innovation for U.S. Stablecoins. Everybody loves the name. But if this law wreaks havoc on the financial system, as seems very likely, that name is going to become a grim joke. It asks a simple question: What genius thought letting the cryptocurrency industry write its own rules was a good idea?
Stablecoins promise a constant value, usually pegged to the U.S. dollar. They are supposed to be the safe part of the crypto world. But despite that reassuring name, they are by far the most dangerous form of cryptocurrency. The GENIUS Act creates a regulatory framework that will likely blow up the stablecoin market to incredible sizes. When these coins explode—and they will—the U.S. government is virtually guaranteed to bail out issuers and holders on a scale of hundreds of billions of dollars.
We have heard "this time it’s different" before. In the early 2000s, Wall Street turned subprime mortgages into triple-A bonds. They called it a risk-free asset. It was alchemy—turning junk into gold. In 2007, that junk went bust and the world plunged into the worst recession since the 1930s. Stablecoins offer the same alchemy, and very possibly, the same disastrous result.
The Illusion of Stability
A $100 purchase of stablecoin should mean $100 in the future. It is meant to offer the security of a bank deposit with the digital speed of crypto. Annie Lowrey: The great crypto crash. But these pledges have proven unreliable. In just 11 years, many issuers have defaulted. Terra, once a top stablecoin issuer, wiped out almost $60 billion of investor assets in May 2022. As the Nobel Prize–winning economist Jean Tirole noted, stablecoins project security but can collapse under pressure.
The GENIUS Act, taking effect by January 2027, puts up guardrails that protect issuer profits while leaving buyers exposed. Advocates claim it is superior technology. They say it is faster than banks. But for lawful transactions, it is prone to fraud. Nearly $3 billion was stolen in the first half of 2025 alone. In 2024, a pharmaceutical CEO made a tiny error transferring stablecoins and lost his entire $1 million holding. The issuer, Circle, took no responsibility. The lawsuit is ongoing.
Most people do not even use these coins to buy things. A 2023 survey by the FDIC found only 3.3 percent of crypto owners use them for payments. The real advantage is holding U.S.-dollar assets while dodging U.S. rules. 99 percent of all stablecoins are dollar-pegged. The new law claims to apply "Know your customer" rules, but foreign coins and decentralized exchanges make that very hard to enforce.
A Four Trillion Dollar Problem
Right now, the stablecoin market is about $280 billion to $315 billion. That is smaller than the 12th-largest bank in the U.S. If it went bust today, we would recover. But analysts at Citigroup project the market could grow to a massive $4 trillion by 2030 under the GENIUS Act. A default there would send shockwaves through the entire global system.
Stablecoin issuers act like banks—taking cash and promising it back—but without the insurance or strict inspections banks face. The GENIUS Act only requires annual audits for the biggest issuers. It revives the worst practices of early American banking.
To make money, issuers do not just sit on cash. They buy assets like Treasuries. The GENIUS Act allows them to buy Treasuries with maturities as long as 93 days. These assets carry interest-rate risk. When rates rise, bond values fall. If stablecoin holders panic and demand their money—a digital bank run—issuers have to sell these assets fast.
Tether, based in El Salvador, recently announced its U.S. Treasury holdings reached $135 billion. That makes it the 17th-largest holder of American debt globally, right behind Germany. In May 2022, Tether faced [demands for 4 trillion market faces a run, they will dump Treasuries, driving up interest rates for everyone. The regulatory sweet spot is to escape insurance costs while banking on a "too big to fail" bailout. In 2008, the government guaranteed $2.7 trillion of money-market liabilities that had never paid for protection. Stablecoins are heading for the same future.
Politics and Paydays
The GENIUS Act passed Congress easily: 68 to 30 in the Senate, and 308 to 122 in the House. The crypto industry lavished millions of dollars on lobbying. Banks thought they were safe because the law forbids stablecoins from paying interest, but the industry is rapidly inventing ingenious ways to bypass that. Even big banks like Goldman Sachs are exploring issuing their own coins.
President Trump and his family have enriched themselves massively here. The Financial Times reported recently that crypto operators put more than $1 billion in pre-tax profits into their pockets in the past year. The Justice Department even announced it would cease most crypto fraud investigations. The Trump family venture, World Liberty Financial, has debuted its own stablecoin, USD1. Read: Trump’s crypto dealings now have the perfect cover.
The shocks are already starting. On October 10, 2025, the industry suffered its biggest one-day loss ever after President Trump threatened tariffs on China. Two anonymous accounts dumped huge quantities of crypto minutes before the news, sparking speculation about insider trading. Exchanges had to suspend deposits.
The GENIUS Act encourages speculators to gamble with other people's money. The Trump administration has lit a fuse to America’s next financial catastrophe. Unless that fuse is snipped, the explosion is only a matter of time.
Disclaimer: This document is intended for informational and entertainment purposes only. The views expressed in this document are not, and should not be taken as, investment advice or recommendations. Recipients should do their own due diligence, taking into account their specific financial circumstances, investment objectives and risk tolerance, which are not considered here, before investing. This document is not an offer, or the solicitation of an offer, to buy or sell any of the assets mentioned.