Cryptocurrencies are once again in the national spotlight due to a series of high-profile federal actions that have reignited crypto policy discussions. Shortly after Inauguration Day, the Trump administration issued an executive order to create the President’s Working Group on Digital Asset Markets, and in March, issued another to establish a “Strategic Bitcoin Reserve.” Recently, the president’s “crypto dinner” with top investors in the $TRUMP memecoin drew sharp media scrutiny, fueling broader concerns about conflicts of interest and corruption.
At the same time, Congress has ramped up its focus on crypto market structure (efforts to regulate the crypto market, including crypto exchanges and related intermediaries) and stablecoin legislation (which would regulate stablecoins, a type of cryptocurrency pegged to a stable value, such as the U.S. dollar). In the 119th Congress, both the STABLE Act and the GENIUS Act have advanced with bipartisan support, and the House recently unveiled the Digital Asset Market Clarity (CLARITY) Act.
Yet while these developments are mostly framed as advancing innovation and competitiveness, the conversations around them have been dominated by industry stakeholders, investors, legal experts, and technical specialists. Much of the public remains left out of the discussion, even though millions of Americans could be affected by the decisions being made.
Fundamental public interest questions remain underexplored in current policy discussions. How will crypto legislation affect everyday people? Shouldn’t communities, consumers, and workers shape crypto policymaking?
While crypto may seem distant from most people’s lives, its influence is expanding rapidly. Even individuals who never buy or trade cryptocurrencies can still be exposed to its risks. As cryptocurrencies find their way into banks, payment systems, retirement plans, and even local infrastructure, the risks they pose are beginning to surface in ways that can impact ordinary people. From financial instability to investor fraud to environmental and public safety risks, the potential consequences are real and growing.
As Congress and federal agencies consider new rules for cryptocurrencies, their decisions should be grounded in the public’s long-term well-being. To that end, this report offers three core principles to help policymakers refocus crypto regulation around fairness, safety, and accountability for all Americans.
Increased crypto risk-taking demands greater policy vigilance
Today’s crypto policy choices are not being developed in a vacuum. Instead, these decisions are occurring against the backdrop of rising bitcoin prices (Figure 1) and a regulatory environment where oversight is weakening and political entanglements are deepening—raising legitimate concerns about regulatory capture, ethical conflicts, and public accountability.
Federal enforcement agencies that once led the charge in curbing crypto-related fraud and abuse are now being restructured or defunded. As a result, there have been substantial changes in the regulatory tenor of key agencies such as the Department of Justice (DOJ) and Securities and Exchange Commission (SEC). For example, the SEC is dropping or pausing lawsuits against several crypto companies.
Meanwhile, banking regulators—such as the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC)—are pulling back guardrails on banks’ crypto activities. And public officials and politically connected individuals on both sides of the aisle have developed close ties with the crypto industry. In some cases, they have launched memecoins, invested in bitcoin-mining facilities, or become personally involved in crypto ventures—raising concerns about potential conflicts of interest.
These trends reflect a pattern seen throughout American financial history. When regulation is relaxed and industry gains political influence, risk-taking often escalates, and the public ends up paying the price.
The 2008 financial crisis is a stark example. In the lead-up to the crash, a combination of regulatory complacency and deregulation of speculative financial products created a recipe for disaster. When the system unraveled, millions of Americans lost their homes, jobs, and retirement savings—even those who had never received a subprime loan or made risky investments. The lesson was clear: When financial regulation prioritizes industry over public safeguards, working families bear the consequences.
Earlier episodes, such as the savings and loan crisis of the 1980s, followed a similar trajectory. Deregulation of the thrift industry, combined with political protection for high-risk institutions, led to widespread failures and a taxpayer-funded bailout of over $100 billion. As with 2008, the public paid for decisions made in the interest of a privileged few.
Today’s crypto policy landscape shows signs of teeing up the possibility of a repeat performance. As enforcement weakens and insider ties grow, lawmakers must remain alert to the broader context in which crypto rules are being written. Decisions made under these conditions can have lasting consequences on financial stability, consumer protections, and national security.
This raises an essential question: Who benefits and who bears the risks in the current direction of crypto policy? That, in turn, raises the question of what a crypto regulatory framework that centers the interests of the American people would look like. In that vein, the following three principles stand out.
Principle #1: Protect the American middle class and working families from financial stability risks
As crypto markets continue to expand and integrate with the broader financial system, middle- and working-class Americans are increasingly at risk of exposure to crypto-related volatility and financial instability—often without their knowledge and regardless of whether they actively participate in these markets. While some harms from crypto are already being felt, others are looming on the horizon. Many of the most serious risks may be mid- to long-term in nature, but history shows how quickly unchecked financial risks can spiral into crisis. From the 2008 financial crisis to the 2023 collapse of Silicon Valley Bank, we have seen how when things go wrong, it is not industry executives who pay the price. Rather, it is everyday Americans who pay, including through taxpayer-funded bailouts.
Today, crypto presents similar risks. Despite its reputation as a separate, alternative market, cryptocurrencies are increasingly integrating into mainstream financial infrastructure, including in the retirement and banking sectors. This growing entanglement increases the likelihood that crypto’s volatility and fragility could one day trigger broader economic fallout.
Retirement systems are already being impacted. Since 2022, some 401(k) plans have begun allowing crypto investments, and several state pension funds have gained exposure to crypto, whether through bitcoin exchange-traded funds (ETFs), or crypto-related companies. Other states are exploring the idea of investing taxpayer funds into crypto or even establishing state-level crypto reserves (in May, New Hampshire became the first state to adopt a crypto reserve). However, cryptocurrencies remain notoriously volatile, with values that can plummet rapidly. These swings pose a serious threat to workers’ long-term savings and the overall health of retirement systems, placing the futures of middle- and working-class Americans at risk.
Meanwhile, the firewall that once separated crypto from traditional banks is beginning to break down. Major banks are already looking to do more business with crypto firms and are courting clients for initial public offerings (IPOs). Banks are also exploring opportunities in stablecoins, including potentially launching their own. At the same time, crypto firms are seeking U.S. bank charters, which would enable them to offer services such as deposits and loans, while several credit unions have begun offering crypto services that allow members to buy and sell cryptocurrencies within their online banking platforms.
Compounding this trend is the fact that key regulators, including the Federal Reserve, FDIC, and OCC, have recently rescinded previous guidance that urged caution for banks engaging in crypto activities. As regulatory guardrails are pulled back, the door is opening wider for crypto to become more deeply embedded in the mainstream financial system—magnifying the risk that failures in the crypto sector could spread far beyond it.
In fact, one critical reason the 2022 collapse of infamous crypto exchange FTX did not trigger a broader financial crisis was because at the time, cryptocurrencies were mostly separate from core banking institutions due to regulatory measures. This separation was not accidental—it stemmed from regulators’ past caution and enforcement. But if cryptocurrencies, especially stablecoins, are allowed to integrate more fully into payment systems and banking networks, future collapses could have broader repercussions.
That’s why ongoing legislative debates around stablecoin regulation are so important. If lawmakers permit lightly regulated entities (including nonbank and bank entities) to issue stablecoins or grant them privileges such as access to central bank infrastructure without robust safeguards in place, they risk introducing an unstable asset—yes, the “stable” in “stablecoins” can be a misnomer, as stablecoins often lose their peg—into the heart of the U.S. financial system. Such a move could expose consumers, banks, and even the broader financial economy to cascading failures during periods of stress.
The warning signs are familiar: Financial products that are complex, opaque, and poorly understood by the public; increased risk-taking justified by promises of innovation; and a growing intertwining of speculative assets and essential institutions. Without stronger oversight and structural safeguards, a major disruption in crypto markets—such as the collapse of a major stablecoin issuer, crypto lending platform, or crypto exchange—could affect pensions, savings, small business loans, and more. And if a taxpayer-funded bailout becomes necessary, even those who never engaged with crypto could bear the cost.
To prevent such an outcome, lawmakers need to take these potential mid- to long-term risks seriously by incorporating appropriate safeguards that maintain and reinforce the separation between crypto and traditional financial institutions, ensuring that banks and retirement systems are not overexposed to volatile cryptocurrencies. They should also consider preventing the use of state or federal funds to purchase or hold cryptocurrencies. These are not inconceivable concerns—they are growing risks that could upend the financial stability of millions of families if left unaddressed.
While the most severe consequences may still lie ahead, the window to contain them is narrowing. In the meantime, millions of everyday investors are already facing immediate dangers due to a lack of protections for investors and consumers in crypto markets, which is a challenge that also requires urgent attention.
Principle #2: Protect retail investors from market manipulation, fraud, and scams
Many retail investors may be drawn to crypto by the allure of high returns, targeted marketing strategies, or endorsements from public figures. But retail investors are also the most vulnerable to the market’s downturns, scams, and manipulations. Unlike institutional investors or crypto “whales” (i.e., large crypto holders), most retail participants lack the resources, information, and financial resilience needed to navigate this volatile space. As a result, they disproportionately bear the brunt of losses.
Research consistently shows a troubling pattern: During price crashes, large bitcoin holders tend to exit early, while retail investors are left to absorb the losses. This dynamic creates a reverse-wealth effect in which wealth is effectively redistributed from less affluent investors to wealthier ones. Retail participants often enter the market later, with less reliable information, and are frequently misled by promotional hype or outright fraud.
This vulnerability is compounded by the lack of meaningful investor protections in crypto markets. Unlike traditional financial markets that have protections such as disclosure requirements, custody standards, and fraud enforcement, crypto markets largely lack these essential safeguards. Many crypto exchanges, for instance, currently operate with built-in conflicts of interest, blurring the roles that would be strictly separated in traditional finance by acting simultaneously as broker, custodian, and market maker. This regulatory gap has created an environment in which scams, market manipulation, and misleading marketing flourish, often at retail investors’ expense.
Chainalysis’ 2025 Crypto Crime Report identified over $2.57 billion in potential “wash trading” activity, in which traders manipulate prices by buying and selling the same asset repeatedly to create a false sense of demand. These tactics are especially harmful in markets where retail investors bear most of the risks.
Public figures, including government officials, celebrities, and financial influencers (or “finfluencers”), have added to the confusion by promoting specific cryptocurrencies and memecoins on social media and other platforms in ways that mislead audiences. A recent paper outlined how financial influencers use speculative hype to drive interest in cryptocurrencies, sometimes engaging in pump-and-dump schemes (in which they artificially inflate the price of a cryptocurrency to attract buyers and then sell their holdings at a profit), and often failing to disclose their financial ties. The result is predictable: Retail investors buy in, only to experience negative returns when the initial hype dies down.
Beyond manipulation, retail investors are also facing a surge in outright scams and fraud. According to the FBI Internet Crime Complaint Center’s (IC3) latest Internet Crime Report, there were nearly 150,000 crypto-related complaints in 2024, totaling $9.3 billion in losses (a 66% increase in losses compared to the previous year). Elderly Americans are particularly vulnerable, with individuals over the age of 60 filing over 33,000 complaints and losing a collective $2.8 billion. These figures likely underestimate the true scale, as many victims never report what happened.
The FBI’s IC3 team was able to compile state-level data on crypto complaints that may be especially useful for congressional and state lawmakers. These data help illustrate regional trends in crypto-related crime and identify areas where targeted oversight and consumer protection measures may be most urgently needed (Table 1).
Crypto ATMs, which are kiosks that convert cash into cryptocurrencies, have also become a growing source of concern. Though often marketed as tools for financial inclusion, these machines charge exorbitant fees and are frequently located in Black, Latino or Hispanic, and lower-income neighborhoods. Instead of providing meaningful financial access, they contribute to a form of predatory inclusion.
Worse still, these machines have been exploited by fraudsters. The FBI’s IC3 team reported nearly 11,000 complaints involving crypto ATM scams in 2024—a 99% increase from the previous year. Victims lost nearly $250 million, with scams often involving fake tech support calls, impersonation of government officials, and extortion. Again, the elderly bore the brunt: Individuals over age 60 filed over 2,600 complaints and saw losses exceeding $100 million.
In the absence of strong federal protections, state regulators have stepped up. They have led enforcement actions against major crypto platforms such as Celsius and Voyager, working to help hundreds of thousands of victims recover their frozen assets. In Celsius’ case alone, prosecutors received over 200 victim impact statements from people who believed their funds were safe, some of whom were misled by claims that the platform was “safer than a bank” or protected by FDIC insurance. Many victims had invested their retirement savings or emergency funds.
States have also developed consumer protection standards and licensing regimes for the crypto sector more broadly, as well as regulations targeting crypto ATMs. But despite their critical role, state efforts alone are insufficient to address the full scope of risks cryptocurrencies pose. The cross-border nature of cryptocurrencies, the potential for regulatory fragmentation due to inconsistent legislation, and under-resourced state agencies all limit what states can do on their own.
To effectively protect retail investors, we urgently need a national framework. This framework should not override state leadership, but build on it. A robust national framework should establish uniform, minimum standards across all jurisdictions while affirming states’ right to impose stricter investor and consumer protections or tailor rules to local risks and resident needs. It should empower state regulators, not displace them, and ensure that safeguards evolve to match the pace and complexity of emerging crypto risks.
Principle #3: Protect local communities, infrastructure, and national security from crypto harms
While cryptocurrencies are frequently discussed in abstract terms of financial innovation or global competition, their most immediate and damaging effects are playing out much closer to home—in America’s cities, towns, and neighborhoods. From cyberattacks and illicit drug financing to environmental degradation and national security risks, the consequences of unchecked crypto activity are no longer theoretical. They are unfolding in real time across the country, affecting everyday Americans where they live, work, and raise their families.
One of the most concerning harms is the growing use of cryptocurrency in ransomware attacks. Because of its pseudonymous nature, crypto is the preferred payment method for cybercriminals who extort local governments, hospitals, schools, and small businesses by locking systems, stealing sensitive data, or threatening exposure. According to a 2022 report by the U.S. Senate Committee on Homeland Security and Governmental Affairs, at least 2,323 local governments, schools, and health care providers were targeted by ransomware attacks in 2021 alone. These attacks are alarming because they can lead to disrupted emergency services (such as the 911 and 311 outages that occurred in Columbus, Ohio in 2024), hospital delays, and the shutdown of school operations, even as many ransomware attacks on local assets are not local in origin.
Crypto is also facilitating illicit activity in black markets and drug supply chains. For example, crypto plays a growing role in the fentanyl crisis that is devastating communities across the U.S. Cryptocurrencies make it easier for traffickers to evade money laundering laws. In Arizona and California, law enforcement seized over five tons of fentanyl worth more than $100 million by tracing crypto transactions. In another case tied to Columbus, Ohio, federal agents seized over $150 million, largely in bitcoin, from dark web drug operations serving crypto-paying customers in all 50 states.
Prior to the disbanding of the DOJ’s National Cryptocurrency Enforcement Team and the scaling back of prosecutors’ ability to bring criminal charges against crypto firms, the federal government had seized billions of dollars in cryptocurrencies. These seizures were connected to a number of cases in the U.S. involving black markets, crypto exchanges, and crypto mixers, which are tools often used to obscure the origin of funds in money laundering, drug trafficking, and ransomware activities.
Unfortunately, the harms are not limited to digital crime. Bitcoin mining is leaving a growing physical footprint in rural and industrial communities across the country, disrupting daily life. These large-scale operations are filled with endless rows of computers running for hours on end and performing nonstop calculations to process transactions and earn bitcoin. They consume extraordinary amounts of energy, strain local power grids, and provide few lasting economic benefits. Reporting found that 34 large-scale bitcoin mines used more electricity than the 3 million households that surround them. In Texas, just 10 bitcoin mines connected to the state’s grid drove a 5% spike in residential energy bills, costing consumers $1.8 billion a year, with some regions, like West Texas, seeing spikes up to 9%.
In addition to environmental costs, bitcoin mines are generating public health and quality-of-life concerns. Residents near bitcoin mining facilities in Texas, Arkansas, and North Dakota have reported persistent noise pollution, described as a round-the-clock hum, that disrupts sleep, increases stress, and may contribute to health issues. In Granbury, Texas, interviews with residents revealed widespread worries about medical problems they believe are linked to these bitcoin mines; reported ailments include hypertension, heart palpitations, chest pain, hearing loss, ear infections, migraines, and vertigo. Bitcoin mines also raise alarms about water usage and potential contamination, especially in drought-prone or resource-scarce areas.
Adding another layer of concern is the foreign ownership of these bitcoin mines. Investigations have found that bitcoin mines across at least 12 states, including Arkansas, Ohio, Oklahoma, Tennessee, Texas, and Wyoming, are owned or operated by entities linked to the Chinese government. In Arkansas alone, at least three facilities are tied to Chinese investors with government ties. Given the strategic importance of energy infrastructure, these developments raise serious questions about surveillance risks, grid stability, and U.S. geopolitical vulnerabilities.
While these examples represent only a fraction of the harms playing out, they make one thing clear: Crypto is already reshaping physical environments, draining public resources, and exposing communities to avoidable risks. And unlike past technological breakthroughs such as smartphones, GPS, or cloud computing, which rapidly improved daily life, cryptocurrencies have yet to deliver comparable public value. Sixteen years after its creation, crypto’s primary legal use case remains financial speculation, benefiting a small class of insiders while leaving everyday Americans to bear the cost.
To protect the public, lawmakers at both the state and federal level should take coordinated action. This includes creating enforcement mechanisms to target crypto’s role in ransomware and illicit markets, establishing robust anti-money-laundering (AML) and know-your-customer (KYC) standards for all crypto platforms, and regulating crypto mining through energy, environmental, and land use policies that mandate public transparency and local input. The urgency of the latter is underscored by the spread of state-level “Right-to-Mine” laws in places such as Montana, Mississippi, Oklahoma, and Arkansas. These laws undermine local governments’ ability to regulate crypto mining facilities, including through zoning authority, and limiting communities’ power to address noise, electricity rates, and other local impacts.
If appropriate safeguards are not implemented, local communities may continue to shoulder the environmental, social, and financial burdens associated with crypto activities. As mounting evidence makes clear, these harms are not hypothetical. There is a strong case for policymakers to consider coordinated, forward-looking regulatory approaches that prioritize transparency, fairness, and the public’s interest.
Potential policy solutions to address crypto risks and harms
As federal and state lawmakers continue shaping crypto legislation, they have an opportunity and responsibility to center the needs of individuals, households, and communities. Table 2 outlines policy recommendations aligned with each of this report’s three principles, illustrating how lawmakers can translate these values into concrete action to safeguard financial stability, protect consumers, and mitigate local harms.
Additionally, given the broader political context in which crypto policy is developing, lawmakers should also take steps to reduce the risk of regulatory capture. One important measure would be prohibiting elected officials and high-level public servants from holding or promoting cryptocurrencies while in office. Doing so would help preserve impartial policymaking, avoid conflicts of interest, and reinforce public trust. Examples include:
- Requiring public financial disclosures of crypto holdings by officials.
- Banning crypto token launches (e.g., memecoin launches), endorsements, or promotional activities by officeholders.
- Prohibiting elected officials from investing in or advising crypto firms while in office.
Conclusion
In the wake of the 2008 financial crisis, the Financial Crisis Inquiry Commission warned that the disaster was not inevitable—it was the result of missed warnings, weakened oversight, and a failure to manage evolving risks. As the Commission wrote:
“We conclude this financial crisis was avoidable…The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public…To paraphrase Shakespeare, the fault lies not in the stars, but in us.”
Today, as crypto becomes more embedded in our financial systems, local infrastructure, and policy discourse, lawmakers once again face a pivotal choice. Will policy evolve to protect the public from mounting risks? Or will inaction, industry influence, and fragmented oversight leave households, communities, and state budgets exposed?
With risks accelerating and oversight receding, the need for thoughtful policy has become increasingly apparent. From systemic financial risks to predatory practices and local environmental harms, the crypto ecosystem poses real and growing challenges. An approach to crypto regulation that prioritizes public safety and long-term economic resilience is not only sound policy, but a necessary safeguard for the broader economy.
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