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Europe is gearing up for an unprecedented Trumpian endorsement of one of the most feared technologies in policymaking circles: crypto.
On Thursday, proponents of the controversial technology will descend on Nashville for a three-day conference at which Trump is scheduled to appear. The presidential frontrunner is expected to offer major policy handouts to the wealthy industry, which has been lavishly donating to his campaign for months.
It’s unclear what exactly Trump will promise to his newfound base — the former president has scant personal interest in crypto, having derided the technology when in office — but whatever he comes out with will get nerves jangling in Brussels and Frankfurt, especially given the nomination of his pro-crypto running mate JD Vance.
For years, the European Union elite has raised the alarm over cryptocurrencies, digital assets stored on a kind of shared database known as a blockchain. That allows them to be transacted freely from user to user without the mediation of financial authorities.
Policymakers have long used regulation to keep in check a technology associated with volatility, money laundering and Ponzi schemes. But their chief fear is that such assets could, if widely adopted, undermine their ability to conduct monetary and economic policy altogether.
Much of their concern has focused on stablecoins, crypto tokens pegged to the value of regular currencies like the dollar and euro. Often used to transition seamlessly between the worlds of crypto and fiat currencies, they are also used as parallel currencies in themselves. Usage has surged in recent years in countries like Russia where the dollar is hard to access, and in countries with weak economies stablecoins have been linked with the decline of local currency.
Understandably, that unnerves the European establishment. In 2019, policymakers panicked when Facebook (now Meta) announced the launch of its own mega-stablecoin, dubbed Libra. Officials worried that Facebook’s size and reach would make Libra a genuine challenger to the euro.
In response, Brussels developed safeguards against stablecoins via the Markets in Crypto Assets (MiCA) regulation, a package of tough requirements on crypto firms which finally came into effect in June. The European Central Bank, for its part, began to explore the idea of developing an easy-to-use “digital euro” that would see off any privately issued currency competitor. Under immense pressure from Europe and large swathes of the financial world, Libra eventually slipped into ignominy.
But that uneasy equilibrium could all be upended by a pro-crypto Trump administration.
For instance, if the industry gets its way, plans for similarly tough regulation in the U.S. could be scrapped in favor of rules making it easier for stablecoins to penetrate financial markets more deeply, three high-level crypto advocates told POLITICO, speaking on condition of anonymity to share details of their lobbying. New legislation might, for instance, let regular commercial banks host and issue stablecoins, or deregulate “crypto-native” stablecoin firms.
That institutional support could result in an explosion in stablecoin trading, not only in the U.S. but also Europe — and it would almost all be denominated in dollars. For one, while stablecoins “pegged” to the euro do exist, they account for only 1.1 percent of crypto trades, according to data from crypto intelligence firm Kaiko. Dollar-backed stablecoins, by contrast, account for a full 90 percent.
“If the Trump factor leads to another crypto market boom, this will see also more stablecoins in the EU, and these stablecoins are predominantly pegged to the dollar,” one high-level European official close to the topic said. “A bunch of European central banks and finance ministries indeed want to limit the presence of dollar-backed stablecoins in the EU, irrespective of who is in the White House, but there is little they can do to achieve this.”
Leaky defenses
European regulators would be hard-pressed to hold back the tide. As Bank of Italy Governor Fabio Panetta, a proponent of the digital euro, argued earlier this month, MiCA doesn’t prevent users from accessing stablecoins on “untrustworthy” exchanges outside the bloc. Neither does it prevent EU-based stablecoin firms — such as the MiCA-regulated, Boston-based Circle — from issuing unlimited dollar-backed tokens, so long as they are used for crypto trading.
Judith Arnal, a senior analyst with the Elcano Royal Institute in Madrid, noted that even MiCA could not prevent the use of a “super interesting stablecoin” geared toward EU citizens.
“EU policymakers are rightfully concerned about currency substitution with the stablecoin acting as a vehicle to replace the euro with USD,” Nic Carter, a general partner at Castle Island Ventures and a influential industry veteran, told POLITICO.
“Stablecoins have become a bit of a financial weapon for the U.S.,” another well-connected lobbyist, granted anonymity to speak freely about sensitive discussions, concurred. “They’re a really powerful way to send dollars to places they wouldn’t normally penetrate.”
To be sure, the euro is no fly-by-night currency doomed to immediate obsolescence. The world’s second-biggest reserve currency is unlikely to be easily usurped by a crypto pretender. And European policymakers do tend to hype the crypto threat, envious of the perceived American capacity for innovation and growth.
“Europeans are locked-in to using the euro … from a very young age,” J.P. Koning, an economist who follows the stablecoin world closely, said. “That’s why the U.S. dollar hasn’t washed over the continent in its current formats as an IOU in a bank database or as a cotton rectangle.”
Today’s stablecoin universe is also too small to pose a threat. The total value of crypto assets — including Bitcoin, a very different kind of beast — still only stands at $2.5 trillion, according to Coingecko.com data. That’s less than 7 percent of the eurozone banking system’s assets and down 16 percent from its 2021 peak, when the world was still drinking Sam Bankman-Fried’s Kool-Aid.
Meanwhile, Trump is keeping Carter, the industry veteran, and others guessing. The former president is largely oblivious to the deep splits on key issues within the industry, they say, and his support is seen as less ideological than as a bid for campaign donations. Still, those involved in discussions appear convinced that stablecoins will be top of the list of proposals Trump unveils in Nashville.
Even if they aren’t, his endorsement — if reinforced by an electoral victory — could trigger a global boom, increasing Europe’s exposure to all-too-frequent crypto meltdowns. More outlandishly, two crypto advocates close to the Trump campaign suggested the Republican presidential candidate may announce plans for the Treasury to accumulate Bitcoin to back the dollar, a proposal that would have untold consequences in foreign exchange markets.
Such risks remain remote. But if one of the Old Continent’s occasional financial crises does shake confidence in the single currency, a mass flight to a flourishing and U.S.-dominated crypto market is not inconceivable. Especially if the value of crypto-assets becomes “significantly inflated,” as one ECB official put it.
“In a crisis only one will survive,” agreed Karel Lannoo, CEO of the Center for European Policy Studies. “And it will be difficult for the euro to fight against the dollar.”
