Crypto could help America manage its debt - or bring down the state

Author: Ben Ashby

The United States government now carries a debt load exceeding $37 trillion and rising. Add the unfunded liabilities of Social Security and Medicare, and the figure swells even further. Every year, interest costs consume an increasing share of federal revenue. In every election cycle, entitlement reform proves politically unpalatable.

This can’t go on forever. Eventually, the bill must be settled. Governments throughout history have reached for the same limited set of tools: taxation (unpopular), spending cuts (unacceptable), default (unthinkable), or the oldest trick of all — monetisation, using inflation to quietly shrink debts.

However, there is a fifth option, less conventional and more perilous, but one that President Trump has already proposed: or, in his words, ‘wiping out our $35 trillion by handing them a crypto cheque’. What he is suggesting is the linking of public liabilities to a speculative asset and letting “the madness of crowds” do the work. To understand how this works and its risks, it’s necessary to understand its ancient origins.

Bubble trouble

The South Sea Bubble of 1720 is remembered as a parable of greed. Yet from the British government’s perspective, it was a success in easing the country’s debt burden. After the War of the Spanish Succession, the state’s liabilities were vast, fragmented and expensive. The South Sea Company offered to absorb them in exchange for shares.

Investors piled in, enchanted by visions of New World riches. The bubble that followed ruined thousands, including Sir Isaac Newton, who reportedly lamented that, “I can calculate the motions of heavenly bodies, but not the madness of men.” However, when the dust settled, the government had consolidated its debts, reduced its interest burden and maintained its credit. Individuals lost fortunes; the state did not.

France tried the same trick with the Mississippi Company. For a while, it looked even more successful. Shares soared, debt was exchanged, and paper money flowed. But when confidence collapsed, the Banque Royale suspended payments, the currency crumbled, and the Crown’s financial credibility was shattered. France never fully repaired the damage. Instead, it contributed to the prolonged fiscal weakness that ultimately led to revolution.

“We’ll hand them a little Bitcoin”

Fast forward three centuries. The United States also sits on an immense debt pile. It also has a ready-made speculative asset at hand: cryptocurrencies and digital assets. The gambit is simple: re-label pieces of public debt inside a state-blessed digital asset and let a speculative premium do the fiscal heavy lifting.

Government-backed crypto, wrapped in patriotic or tech utopia branding, could be exchanged for Treasuries or dollars. It might take the form of tokenised Treasuries or a “LibertyCoin” that offers instant settlement, becoming usable in DeFi and helping to resolve some of the broader plumbing issues in the crypto universe.

This would replace costly debt with non-interest-bearing digital money. Alternatively, the government could attach special rights or privileges, such as tax exemptions or access to certain government services. Indeed, not only has Trump discussed the role of crypto in reducing the national debt, he is already familiar with the use of speculative digital assets. Trump, for example, recently invited the largest holders of his meme coin to the White House. This effectively cost them $140 million.

Throw in the illusion of scarcity or a patriotic narrative, and you could generate speculative demand for these interest-free assets. Investors, chasing visions of easily won riches, might pour in. And if the token or wrapper soared in value, liabilities would be inflated away — just as South Sea shares once did.

As we know from history, fundamentals often don’t matter for long periods of time. What matters is the speculative energy.

This idea may seem fanciful, but it’s not. In addition to Trump openly discussing it, the Treasury Secretary has already begun engaging with the crypto industry in relation to demand for US debt and openly discussed it as a potential means to reduce interest rates.

However, there are obvious risks, as seen in the Trump and Melania coin saga, where insiders appeared to buy just before its launch and then dump them shortly afterwards, illustrating how easily personal politics and cryptocurrency can intersect. This is why Trump’s attempts to undermine the Federal Reserve, along with the Trump coin fiasco and the Treasury’s flirtations with digital assets, are so troubling. They put the US at risk of following France’s example rather than Britain’s.

Institutions are the difference

The difference between the UK and France was institutional. In 1720, the British Parliament authorised the South Sea scheme but kept its distance and later punished its worst offenders. The Bank of England stepped in to steady the markets, preserving the state’s credibility. France had no such buffers; the Mississippi bubble was the Crown’s bubble, and when it burst, so did the monarchy’s financial standing. Washington today risks looking less like Westminster and more like Versailles, where personal power, speculation and the state itself were indistinguishable.

History’s warning is clear. Excessive speculation, even bubbles, can strengthen a state if handled with care, but they can also destroy credibility if pushed too far. Britain managed it; France did not.

Crypto offers the modern version of that temptation. It is volatile and popular and its promoters are always hungry for a narrative. A clever US Treasury could sell it as innovation; a desperate one could sell it as a means for national salvation. Either way, the danger remains the same: confusing speculation with policy puts the foundation of state credit at risk.

The United States still has conventional tools to solve its debt problems: reform, taxation and, yes, inflation. However, if it ever attempts to ease its debts by wrapping them in a speculative asset, investors should remember the lessons of 1720. If even one of humanity’s greatest geniuses, like Newton, can make mistakes, then so can geniuses of the very stable kind.

Because what looks like clever finance from Washington’s perspective could, for everyone else, turn into the greatest rug pull of all time.