This summer, a group of executives pitched a business plan to Anthony Scaramucci, the Wall Street financier and short-lived adviser to President Trump.
They wanted Mr. Scaramucci to join a publicly traded company with a peculiar strategy: accumulating enormous quantities of cryptocurrency to make its business more appealing to investors.
They “didn’t really have to pitch it to me,” said Mr. Scaramucci, who was soon unveiled as an adviser to three little-known companies with this same plan. “It was a pretty easy conversation.”
The excitement did not last. The crypto market cratered this fall, sending shares of all three of Mr. Scaramucci’s ventures tumbling. The worst performer plunged more than 80 percent.
The businesses were part of a frenzy of crypto activity driven by Mr. Trump, who has turned the once obscure world of digital currencies into a major force in the global economy. Declaring himself the first “crypto president,” Mr. Trump ended a regulatory crackdown on crypto companies, promoted crypto investments from the Oval Office, signed pro-crypto legislation and even launched a “memecoin” called $TRUMP.
Now the consequences of that advocacy are coming into focus.
An array of boundary-pushing new crypto ventures have emerged this year, exposing more people to the volatile world of virtual currencies. More than 250 publicly traded companies are now stocking up on cryptocurrencies, which are digital assets that fluctuate in price like stocks, bonds or other investments.
A wave of companies have started offering products that make it easier to incorporate crypto into brokerage accounts and retirement plans. And industry executives are pitching regulators on a plan to offer coins that represent shares in public companies, which would be traded in a crypto-powered version of the stock market.
The rush of experimentation has already led to problems. Major cryptocurrencies crashed over the last two months, sending businesses that had loaded up on the assets into free fall. Other new ventures have drawn warnings from economists and regulators who point to mounting risks.
At the center of the concerns is a rise in borrowing. By this fall, public companies had taken out large loans to buy crypto. And investors had placed more than $200 billion in bets on future coin prices, a type of trade often made with borrowed money, which sets buyers up for major gains or crushing losses.
The industry’s latest offerings have also linked crypto to the stock market and other parts of the financial world, raising the prospect of a chain reaction that spills a crypto crisis into the broader economy.
“The line between betting, speculating and investing has largely disappeared,” said Timothy Massad, who served as the Treasury Department’s assistant secretary for financial stability after the 2008 recession. “It’s very worrisome to me.”
Karoline Leavitt, the White House press secretary, said Mr. Trump was making the United States “the crypto capital of the world by driving innovation and economic opportunity for all Americans.”
Crypto executives said the new ventures showed the technology’s potential to reshape outdated elements of the finance system. They described market volatility as a source of potential profits.
“It’s higher risk, also potentially higher reward,” said Duncan Moir, the president of 21Shares, which issues financial products that make it easier to invest in crypto. “What we do is bring these investment opportunities to more people.”
The experimentation has flourished in a regulatory landscape that has never been friendlier to crypto firms. After years of fighting the industry in court, the Securities and Exchange Commission established a crypto task force in January that has held dozens of meetings with firms seeking new rules or approval to offer new products.
An S.E.C. spokesman said the agency was working to “ensure investors have robust information to make informed decisions.”
Many of these new types of businesses have some connection to the Trump family’s growing lineup of crypto companies, which have blurred the line between commerce and government.
This summer, the leaders of Mr. Trump’s crypto start-up, World Liberty Financial, announced that they were joining the board of ALT5 Sigma, a public company that once ran a recycling business.
Now it planned to raise $1.5 billion to buy digital coins.
The Deluge
Crypto enthusiasts came up with a name for the era of risk taking and enthusiasm ushered in by Mr. Trump’s new administration.
They called it “DAT Summer.”
A DAT, or digital asset treasury company, is a publicly traded firm that aims to buy as much crypto as possible. A little under half of these new companies have focused on buying Bitcoin, the best-known cryptocurrency, but dozens of others have announced plans to accumulate less established currencies like Dogecoin, according to Architect Partners, a crypto advisory firm.
The ventures often follow a simple playbook. A group of executives identifies a little-known company — a toy manufacturer, for example — that already trades on the public markets and is interested in building a cache of crypto. The group strikes a deal with the company and raises millions of dollars from wealthy investors. Then it uses the funds to buy digital coins.
The aim is to expose more people to crypto by allowing them to buy traditional stocks that mimic the price of a digital currency. It is a potentially profitable strategy. Some investment funds and other money managers have been reluctant to buy crypto directly, partly because it can be complex and expensive to store the coins, which are often targeted by thieves and hackers.
By investing in a DAT, a money manager can outsource those logistics. But the DATs have proved risky, too. Many were launched quickly or are managed by executives who have little experience running public companies. Collectively, the firms have announced plans to borrow more than $20 billion to buy crypto, according to Architect Partners.
“Leverage is how financial crises happen,” said Corey Frayer, a former crypto adviser to the S.E.C. “And this is creating a boatload of leverage.”
Already some of the firms are struggling or facing management crises, leaving investors with losses.
Forward Industries, a treasury company that stocked up on a coin called Solana, saw its stock price soar in September to nearly $40 a share after it raised more than $1.6 billion in capital from private investors.
Among them was Allan Teh of Miami, who invests on behalf of a family office and put $2.5 million into Forward this year.
“Everyone thought that strategy is going to work — the asset is going to keep going up,” Mr. Teh said.
Then the market dipped, sending Forward’s stock to as low as $7 this month. The company announced a plan to spend as much as $1 billion over the next two years to buy its own stock, but the move failed to stem the price decline.
“The music stops. Now I’m wondering, am I going to get out?” said Mr. Teh, who has lost about $1.5 million. “How big of a loss am I going take on this stuff?” Forward declined to comment.
The surge of DATs has put the S.E.C. on alert. “Obviously, there are worries,” Paul Atkins, the agency’s chair, said in an interview at a Miami crypto conference last month. “We are watching.”
But this new corner of the crypto world has a powerful supporter: the Trump family.
In August, World Liberty Financial announced that its founders, including the president’s son Eric Trump, would join the board of ALT5 Sigma, which planned to accumulate WLFI, a coin created by World Liberty. (Eric Trump is now listed as a strategic adviser and observer.)
The venture appeared poised to generate immediate profits for the Trumps. Under a revenue agreement published on World Liberty’s website, a Trump family business entity receives a cut of the profits every time the WLFI coins change hands.
Since then, ALT5 Sigma has struggled. The company revealed in August that an executive at a subsidiary had been found criminally liable for money laundering in Rwanda, and that the board was reviewing other matters “that were not previously disclosed.” Soon ALT5 Sigma announced that it was suspending its chief executive and cutting ties with two other top officials.
Its share price has dropped 85 percent since August. An ALT5 Sigma spokesman said the company remained “excited about our future.”
Flash Crash
Much of crypto’s recent turmoil can be traced to a single night in October.
Driven by President Trump’s support, the crypto market had surged for most of this year. But on Oct. 10, Bitcoin and Ether plummeted, along with dozens of other coins.
It was a “flash crash,” or sudden implosion.
The immediate cause was Mr. Trump’s announcement that he would impose a new tariff on China, which rattled the global economy. But the damage to crypto prices was especially severe because of the amount of borrowing driving the market.
On crypto platforms, traders can use their holdings as collateral to take out cash or borrow funds to make even bigger bets on digital currencies. Worldwide, this crypto-based borrowing expanded by $20 billion in just the third quarter, hitting a new peak of $74 billion, according to Galaxy Research, a crypto data provider.
Much of the riskiest crypto trading typically happens overseas. But in July, Coinbase, the largest U.S. exchange, said it would start offering an investment tool that let traders borrow 10 times the amount of their holdings to bet on the future prices of Bitcoin and Ether. Coinbase released the product after federal regulators withdrew advisories that had restricted that type of borrowing in the United States.
The October crash has not caused the sort of catastrophe that devastated the industry in 2022, when a procession of major crypto firms went bankrupt. But it offered a preview of the type of crisis that could engulf the crypto world.
By its nature, borrowing accelerates losses when the market enters a downturn, because it forces exchanges to sell customers’ collateral — a process known as liquidation, which often sends prices even lower.
Worldwide, at least $19 billion in these leveraged crypto bets was liquidated on Oct. 10, affecting 1.6 million traders, according to CoinGlass, an industry data tracker. The wipeout was concentrated on foreign-based exchanges like Binance, OKX and Bybit.
The crash caused a surge of transactions, and some traders encountered technical issues as they tried to move funds on the major exchanges. Coinbase said it was aware of customers who “may be experiencing latency or degraded performance when transacting.”
Derek Bartron, a software developer and crypto investor in Tennessee, said his Coinbase account froze. “If I wanted to get out of a position, I couldn’t,” he said. “It was like Coinbase almost locked people out of their ability to save their funds, and we just had to ride the roller coaster.”
In total, Mr. Bartron lost about $50,000 of crypto in the days after the crash, he said, partly because he was not able to sell his holdings when he wanted.
A Coinbase spokeswoman said the company offers automated tools to manage risks. “These worked without issue, and our exchanges were operational throughout the incident,” she said.
A Binance spokeswoman acknowledged that the exchange had “experienced technical issues as a result of the significantly increased traffic,” and said it had taken steps to compensate users.
The Experiment
One evening this summer, the crypto entrepreneurs Chris Yin and Teddy Pornprinya arrived at the Kennedy Center in Washington for a black-tie reception.
It was a high-powered affair. Wearing a tuxedo he had bought the night before, Mr. Yin introduced himself to Vice President JD Vance, a onetime Silicon Valley investor. He and Mr. Pornprinya talked with Treasury Secretary Scott Bessent, a former hedge fund manager. And they posed for photos with Mr. Trump, who flashed a thumbs up.
Mr. Yin and Mr. Pornprinya were laying the groundwork for another audacious venture the industry has pitched this year. They wanted to extend crypto’s underlying technology to other types of finance.
For months, their start-up, Plume, has sought permission from U.S. regulators to offer an online platform where customers can buy digital coins representing shares of something in the real world — a company, a farm, even an oil well.
Overseas, Plume’s customers can buy shares of these types of products and then trade them like other coins. But the service, known as “tokenization,” occupies a legal gray area in the United States, where decades-old securities laws impose strict rules on anyone selling shares of anything. Those rules are intended to protect investors by requiring stock issuers to make detailed disclosures.
This year, tokenization has become one of the hottest ideas in crypto. Industry executives argue that “tokenized equities” would make stock trading faster and more efficient, creating a 24/7 market in which shares would constantly change hands around the world. Kraken, one of the largest U.S. exchanges, already offers a crypto-based stock market to its customers overseas.
In the crypto world, transactions are recorded on a public ledger, making it more transparent than traditional finance, industry executives said. “It’s traceable, and it’s auditable,” said Arjun Sethi, Kraken’s chief executive. “It’s like the opposite of risk.”
Representatives for Kraken and Coinbase have met with the S.E.C. to discuss rules for tokenized assets, while Plume is seeking a legal pathway that would allow it to expand operations in the United States.
But the race to release these products has worried current and former regulators, as well as powerful executives in traditional finance.
In September, economists at the Federal Reserve argued that tokenization could transmit financial shocks from crypto into the broader economy and “undermine policymakers’ ability to preserve the integrity of payments systems, especially in times of stress.”
Mr. Atkins, the S.E.C. chair, has voiced enthusiasm about tokenized shares, describing them as a major technological advance.
“The commission has broad discretion under the securities acts to accommodate the crypto industry, and I intend to get it done,” he said at an industry round table on tokenization in May.
Mr. Yin and Mr. Pornprinya have pulled various levers to position their company favorably. They met with the S.E.C.’s crypto task force in May, contributed a graphic to a White House crypto report and opened a U.S. headquarters for Plume on the 77th floor of the Empire State Building.
At the black-tie reception in Washington this summer, Mr. Trump’s lieutenants appeared receptive to the founders.
“They knew about Plume,” Mr. Pornprinya said. “They were all aware of us.”
A few weeks later, Plume announced another potentially useful connection: a business partnership with World Liberty, the Trumps’ crypto company.
David Yaffe-Bellany writes about the crypto industry from New York. He can be reached at [email protected].
The post What Trump’s Embrace of Crypto Has Unleashed appeared first on New York Times.
