Cryptogeddon: a user’s guide for central banks

London Business School’s Richard Portes sets the tone for Cryptogeddon (Central Banking, 26 November), warning that while a bitcoin crash would cause pain for leveraged punters, the real systemic threat sits with stablecoins and the fragile infrastructure around them. Native crypto assets, he argues, are too volatile and too marginal to topple traditional finance, unless hidden leverage is far larger than regulators realise.

The real danger lies in exchanges that can malfunction at scale, and in “stablecoins” backed by money-market funds and other assets that can rapidly unravel under stress. The article charts how Donald Trump’s pro-crypto stance and regulatory rollbacks have turbocharged market integration just as flash crashes and de-peggings expose persistent vulnerabilities.

Past warnings from the IMF, FSB and New York Fed all converge on the same theme: crypto’s growing entanglement with traditional finance, paired with patchy data and fragmented oversight, creates risks that are poorly understood and easy to underestimate. Experts diverge on how serious the threat is.

Michael Reddell plays down systemic risk for now, stressing that crypto remains peripheral to payments, household balance sheets and mainstream credit. But Germany’s Ralf Fendel and Portes see unsettling echoes of pre-2008 complacency: opaque exposures, weakening guardrails and politically driven deregulation.Stablecoins dominate the “what-if” scenarios. With Tether and USDC holding Treasury portfolios the size of major sovereigns, a redemption run could force fire-sales into the already fragile Treasuries “plumbing”, with spillovers hitting smaller crypto-facing banks first.

Central banks might not want to bail out crypto infrastructure, but history suggests they would have no choice if contagion hit core markets. The piece ends with a sober reality check: central banks have repeatedly intervened in markets they never expected to touch. If a crypto shock metastasised, the response would look less like rescuing coins and more like stabilising the institutions and markets around them. Portes’s parting concern is simple: the risks are real, the data thin, and regulators are distracted.