Senator Blumenthal warns of risks integrating cryptocurrencies into the banking sector

He argues that rushing to craft laws under pressure from industry lobbyists creates conditions where crypto market volatility and massive deposit flows can quickly turn local failures into system-wide threats.

Blumenthal draws parallels to the collapse of Silicon Valley Bank, Signature Bank and First Republic. He notes these banks received favorable audit opinions before they collapsed and that rapid outflows showed how fast modern finance can accelerate and then unwind. The senator says large crypto ecosystems and related firms played a role: when markets plunged after a series of scandals, deposits exited just as fast. That led to substantial losses for depositors and required federal intervention.

The senator harshly criticizes lawmakers he says are trying to “check the box” for the crypto sector and warns against integrating digital money into the banking system. In particular, he points to the rise of stablecoins and the crypto “yield” practices, offerings that resemble deposit products but lack the guarantees and regulatory protections of traditional bank accounts. Blumenthal argues these options raise the risk of fast-moving runs and broader systemic stress.

He also highlights problems with audit transparency and risk assessment: oversight professionals sometimes miss or dismiss vulnerabilities that later cause investor losses. The senator calls for tougher limits and warns against writing rules that would let the industry effectively set its own standards inside the traditional banking infrastructure.

Overall, Blumenthal’s takeaway is that the risks tied to closer integration between crypto assets and traditional banking are being underestimated. Regulators should remove optimistic assumptions and view the facts soberly.

Note that this stance diverges sharply from the White House position and from statements by Donald Trump, who in recent months has signaled a more favorable approach to digital assets and policies beneficial to the industry. In particular, his family has been active in crypto projects: including the launch of the USD1 stablecoin and efforts to secure a banking charter to support those operations.

Those initiatives have generated commercial interest and prompted questions about potential conflicts of interest.