As Donald Trump prepares to assume the U.S. presidency, fears are growing that his administration will dismantle the barriers separating traditional financial institutions from the volatile crypto sector. Australian Treasurer Jim Chalmers has hinted that similar policies could find their way into Australia, raising concerns about the potential impact on the nation’s financial stability.
Reflecting on Australia’s resilience during the 2008 Global Financial Crisis (GFC), Chalmers noted that the nation’s financial institutions had avoided the exotic derivatives that led to disaster in the U.S. and the U.K. Australia was further shielded by swift fiscal stimulus measures, both domestically and in China, which softened the blow of the global recession. However, Chalmers’ recent comments suggest that Australia may not be as fortunate in avoiding the next financial upheaval, particularly if crypto becomes entrenched in the financial system.
Volatility or Worthlessness? The Debate Over Crypto
Critics often point to the extreme volatility of cryptocurrencies, but Chalmers argues that this alone should not pose a threat. “Commodity prices are volatile,” he stated, “yet commodity futures have long been traded in financial markets.” The greater concern, however, lies in the fundamental nature of crypto assets.
Unlike traditional assets, cryptocurrencies lack inherent value. Bitcoin, for instance, is merely a digital certification of an arbitrary mathematical calculation with no tangible use. By contrast, fiat currencies hold value because governments accept them for tax payments, while assets like gold, stocks, and bonds have intrinsic or derivative worth.
Without similar backing, crypto prices are driven entirely by market sentiment. “As soon as people decide that crypto is valueless, it will become so,” Chalmers said. “This could lead to a domino effect of sell-offs, driving prices down to zero.”
Systemic Risks Loom Large
To date, traditional financial institutions have largely been insulated from crypto market crashes. However, the intertwining of crypto with mainstream finance under Trump’s policies could change that dramatically. Mortgages may increasingly rely on crypto as collateral, loans to crypto exchanges could proliferate, and stablecoins—critical for converting crypto into fiat currency—could become points of systemic failure.
Tether, the dominant stablecoin, exemplifies the risks. With claimed assets exceeding $100 billion, Tether has consistently failed to provide transparent accounting. Chalmers has promised reforms to regulate stablecoins, but critics question whether Australia can effectively oversee global entities like Tether.
Lessons from the GFC
Australia’s ability to weather the GFC was a testament to sound policy and a degree of good fortune. However, Chalmers warns that the incorporation of crypto into the financial system could leave the nation relying solely on luck to avoid catastrophe.
“The danger is not just the loss of speculative investments but the contagion effect,” he cautioned. “Traditional financial institutions could find themselves dragged into the chaos.”
As policymakers weigh the risks and rewards of crypto integration, the stakes for Australia’s financial stability could not be higher. With the lessons of the GFC in mind, Chalmers’ call for caution may prove prescient as the nation grapples with the challenges of a rapidly evolving financial landscape.
