The Bank of Italy has warned that President Donald Trump’s aggressive push to normalize crypto could wreck the global financial system.
In a financial stability report published on Tuesday, officials in Rome said the United States’ growing support for crypto assets risks making them so important that a future collapse would hammer banks, bond markets, and the real economy.
According to the Bank’s report:
“The strong growth of Bitcoin and of other crypto assets with high price volatility means risks not only for investors but also potentially for financial stability, given the growing interconnections between the digital asset ecosystem, the traditional financial sector, and the real economy.”
They pointed out that it’s no longer just retail investors throwing money into crypto. The links between crypto and the old-school financial world are getting tight enough to trigger real fallout if things turn bad.
Italy raises alarm over stablecoin risks after Trump’s crypto push
The Bank of Italy made it clear that Trump’s win in November and his move into office in January opened the floodgates for crypto in Washington. They highlighted how US lawmakers, riding the momentum of the new administration, have been rushing to set up a regulatory framework for stablecoins.
A bill in the Senate has enough backing to move forward. The Bank of Italy warned that this political environment could fast-track crypto’s integration into the mainstream.
European officials aren’t thrilled either. Francois Villeroy de Galhau of France and Olli Rehn of Finland, both policymakers at the European Central Bank, voiced serious worries about crypto going mainstream in the United States.
Rehn said bluntly on Monday, “I’m quite concerned about possible mainstreaming of cryptoassets in the US.” European officials fear that if stablecoins, especially dollar-pegged ones, go big under Trump’s watch, the ripple effects could hammer economies worldwide.
The Bank of Italy flagged that besides dollar-backed coins, there are stablecoins tied to the euro and other assets, too. They warned that while dollar-tied stablecoins have mostly held steady, the rest of the crypto market remains dangerously volatile.
Italy’s central bank said the wild price swings in these assets show just how badly things could go wrong if these instruments dig deeper into the traditional financial system. Italy’s report also said:
“After the new US administration took office and following the announcement of its initiatives to promote the use of crypto assets, there was also a temporary but sharp increase in global market prices for these products, including highly speculative ones.”
They stressed that the higher the overlap between crypto and regular finance, the more fragile the entire system becomes.
Italy says stablecoin crash could hit bonds and spread chaos
The Italian central bank’s nightmare scenario is a stablecoin issuer falling apart. The report spelled out that most major stablecoin issuers depend heavily on short-term US Treasuries to back their tokens. If one of these issuers collapses, it could unleash a mad rush by holders scrambling to cash out.
“In the event of a failure of one of the latter, there could be a rush to reimbursements, with a sudden increase in requests for liquidation by the holders and with the forced sale of reserve assets,” the report said.
The Bank of Italy warned that if everyone tries to sell their Treasury holdings at once, the US government bond market would get slammed hard. That stress wouldn’t stay contained either — the shock would smash into banks, funds, and other key parts of the world economy. They painted a picture where one crypto crash could start a domino effect that no one is ready for.
The financial stability report also pointed out that it’s one of the first since Trump’s tariffs sparked heavy market instability. Even though market tensions have cooled a little since April, the Bank of Italy said risks are still higher across the board compared to before Trump took over. Their report gave a stark reminder that even small policy moves now carry much bigger consequences, thanks to how unstable everything has become.
