The City is waking up to a new breed of market volatility. Donald Trump, the former US president, has reportedly turned a $1bn profit on a cryptocurrency venture, a sum that would make any hedge fund manager blush. But while the numbers are eye-catching, it is the regulatory vacuum that has the Square Mile reaching for the smelling salts.
Let’s be clear. This is not a story about Trump’s financial acumen, questionable as that may be. It is a story about a market that operates in the shadows, where billions can be made and lost without a single regulator raising an eyebrow. The same week that gilt yields wobbled on inflation fears, we learn that a single individual can pocket a billion from digital tokens. That is a systemic risk, and it is staring us in the face.
The mechanics are straightforward. Trump’s venture, a crypto project called World Liberty Financial, appears to have profited from the speculative frenzy surrounding his return to the White House. The timing is impeccable. The lack of transparency is staggering. We are asked to believe that this is just another entrepreneurial success. But the City knows better. This is capital flight in its purest form. Money that could have been taxed, monitored and channelled into productive investments is instead sloshing around in unregulated digital wallets.
Consider the implications for fiscal policy. If the market is pricing in a second Trump term, it is also pricing in the unpredictability that comes with it. Crypto is the ultimate barometer of that unpredictability. It thrives on uncertainty, on regulatory arbitrage, on the absence of oversight. And when a man who once called Bitcoin ‘a scam’ makes a billion in crypto, you have to ask: what has changed? The answer is nothing. The man has simply adapted to the environment.
For the Bank of England and the Treasury, this is a nightmare scenario. They have spent years trying to bring crypto into the regulatory fold, with talk of stablecoins and digital pound pilots. But the genie is already out of the bottle. The City’s finest are already positioning themselves for the next wave, setting up crypto desks and lobbying for lighter touch regulation. Trump’s windfall will only embolden them.
The real danger is the contagion effect. Gilt yields are already sensitive to any whiff of fiscal irresponsibility. A crypto-fuelled bubble in the US could spill over into UK markets, sucking liquidity out of traditional assets. We have seen this movie before. In 2022, the collapse of FTX sent shockwaves through the financial system. Now imagine a Trump-sized entity going bust. The City would not be able to look away.
And yet, what can be done? The FCA is already overstretched, trying to police a market that moves at the speed of light. The Chancellor could impose a windfall tax on crypto profits, but that would drive activity offshore. The Treasury could accelerate its digital pound plans, but that would take years. In the meantime, the markets will do what they always do: they will chase returns, regardless of the risk.
There is a bitter irony here. The same politicians who decry government overspending are now celebrating a man who has made a fortune in the least transparent corner of the financial system. It is convenient to ignore the red flags when the numbers are this big. But the City remembers the lessons of 2008. We all do.
So I will leave you with this. A $1bn crypto windfall is not just a news headline. It is a canary in the coal mine. If we fail to regulate these markets, we will pay for it in volatility, inflation and capital flight. Mark my words. The bottom line is coming for us all.
