Deregulation Risks

July 16, 2025

It’s pretty simple. When money is flowing and markets are going up, complacency takes over. Nobody asks questions. But the real test comes when everyone tries to get out at the same time. That’s when it hits the fan. So the question is: what could trigger the next massive exodus?

The three biggest deregulations I’m seeing right now that pose long-term systemic risk are:

·         Legitimization of crypto

·         Private equity gaining access to retirement accounts like 401(k) plans

·         Easing of fiscal policy and ballooning national debt

Historically, deregulation has one consistent outcome: it allows players to exploit the system with little oversight or accountability. That usually leads to asset bubbles, which then unwind in painful, disorderly fashion.

Crypto

With the new administration taking a clearly favorable stance, crypto is gaining mainstream momentum. And since markets are inherently opportunistic, we’re now seeing more corporate adoption, platform integration, and promotional tailwinds. As it creeps into traditional asset managers’ platforms, crypto is slowly blending into the broader investment ecosystem.

Add to that talks of a “Strategic Bitcoin Reserve” or a “U.S. Digital Asset Stockpile” — efforts that sound like innovation, but really just flood the system with more liquidity. My concern? This could eventually become a massive liability for the government, especially if it ends with the taxpayer footing the bill.

Private Equity

To increase liquidity and open up new exits, private equity firms are pushing hard to get a slice of the $12 trillion defined contribution market, especially 401(k) plans. But let’s not forget: these are illiquid assets with complex and often opaque valuations.

Private equity sponsors are pitching it like they’re offering retail investors exclusive access to a privileged club once reserved for the ultra-wealthy — but is it really in the best interest of retirees and long-term savers?

The risks here are real. Who steps in when liquidity dries up? Where does the transparency come from on pricing and holdings?

When the tide turns, it’s usually not the fund managers or private equity sponsors who get stuck. It’s the everyday saver left holding the bag.

Treasury & Fiscal Policy

Over the last four decades, excessive spending and sweeping tax cuts have driven U.S. federal debt to historic highs. Since surpassing the $1 trillion mark in the Reagan era, we’ve been growing it at roughly 8.9% annually. And now, with the likely passage of the “Big Beautiful Bill,” it is estimated to add another $3 to $4 trillion to the tab.

Thanks to the U.S. dollar’s reserve currency status, we’ve kept the printing press running full steam. Foreign central banks still hold about $9 trillion in Treasuries—roughly 30% of all outstanding debt—but their appetite for new issuance is clearly waning.

I don’t think they’ll dump their existing holdings—they’re already sitting on unrealized losses from rate hikes and dollar depreciation, so it’s more likely they’ll just let bonds roll off. But fewer new participants mean someone else needs to step up.

One workaround? Regulators quietly eased the Supplementary Leverage Ratio (SLR) from 5–6% to 3.5–4.5%, freeing up about $210 billion in bank balance sheet capacity to buy Treasuries.

Another effort? The growing push for stablecoins, which are generally backed 1:1 by USD or Treasuries—creating around $260 billion in synthetic demand.

Still, we’re a long way from covering the hole left by foreign buyers. And let’s not kid ourselves: stablecoins are just money market funds with a flashier name—not some invincible new asset class immune to risk.

As for the Treasury market more broadly—whether the worry level should be $40 trillion, $50 trillion, or $60 trillion—I don’t know. But as debt obligations grow, insolvency risk isn’t off the table. We’ve coasted for decades on the privilege of reserve currency status, but that status comes with responsibility. It’s time we get serious: create a budget surplus, rein in spending, and start chipping away at the national debt before we lose the credibility that status demands.

Final Thoughts

I don’t know if or when these risks will blow up. I hope they don’t. But I do know this: there are plenty of high-quality public securities that serve the needs of long-term savers—and many of them will likely outperform crypto and private equity over time.

Markets are already highly leveraged. And as more investors chase short-term gains and abandon fundamentals, volatility is only getting worse.

We don’t need more risk shoved into the system. Let’s leave the so-called “sophisticated” stuff to those who can afford to lose. For the rest of us, there’s still plenty of opportunity in transparent, liquid, time-tested investments.

As always, if you’d like to discuss how we’re managing these risks in your portfolio, I’m just a phone call or email away.

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