QUESTION
My bank's management is deciding whether to accept cryptocurrency in down payments on mortgage loans. We have a large third-party originator channel. These TPOs are both banks and nonbanks, and some of them want to accept cryptocurrency rather than dollars. Frankly, I am very concerned about it. I don't think crypto is stable.
On top of that, the Trump Administration wants to make crypto a legitimate asset, like the dollar. I believe they want to use it as part of our reserve currency. I know how Bitcoin works. A reliable, inherent standard, such as the GDP or other statistical metrics, does not influence it directly. There's no underlying metric other than market demand.
As my bank's CFO, I do not feel that cryptocurrency should have the same fungibility as the dollar. I am worried that we are diminishing our reserve currency status. I know your newsletter is widely read and you don't shy from controversy, so I am hoping that your feedback will provide more perspective than all the pros and cons we're hearing in the news.
Should cryptocurrency be accepted in lieu of dollars for a down payment on mortgage loans?
How has the Trump Administration supported cryptocurrency?
SOLUTION
RESPONSE
Thank you for your kind words. I've been told the newsletter is popular. The subscriber base is very large. As to shying away from controversy, sometimes people would rather go to their silos than consider different viewpoints. Fortunately, based on the feedback, almost all our subscribers are genuinely interested in exploring various perspectives on legal and regulatory compliance. There is a political tint to regulations and legislation that is unavoidable. These do not get promulgated in a vacuum. And, if you're expressing concern, you can be sure that many other individuals are expressing similar concerns, whatever the topic.
So, I do not shy away from controversy. And I ask you also not to be shy of controversy in your questions and comments. I read every one of them and answer most!
Let's first discuss whether cryptocurrency is safe versus the dollar. Conceptually, I think it's possible to outline a response based on four categories: backing and regulation, volatility and potential for loss, insurance and consumer protections, and security and scams. This composite may be helpful in establishing a comparison, given that the dollar is a worldwide reserve currency that investors in dollar-denominated assets continually evaluate in terms of the foregoing categories.
The following sets forth a brief comparative outline. We will provide a table of this outline if you request it here.
Backing and Regulation
US Dollar (Fiat Currency)
The US dollar is a centralized fiat currency, meaning it's issued, backed, and maintained by the government and is considered legal tender. It's regulated by central authorities like the Federal Reserve, which works to minimize inflation and maintain economic stability. It is not backed by a physical commodity such as gold or silver. Instead, its value is derived from the trust and confidence that people place in the issuing government and the stability of the economy it represents.
Characteristics of a fiat currency are that it is government-issued, not backed by a commodity, its value is based on trust and confidence, it is always a controlled supply, and it is legal tender.
As I see it, any fiat currency has pros and cons. On the pro side, it offers economic stability, especially by governments and central banks controlling the money supply and interest rates, the goal of which would be to reduce economic downturns. It is flexible, too, because governments can expand or contract the money supply to combat inflation and stimulate economic growth. And, as I said above, it can support international trade, because it facilitates international transactions without necessitating trading partners and countries to stockpile physical commodities like gold to back their currencies.
On the con side, there are some serious problems. For instance, fiat currency can cause inflation because a government may expand the money supply too aggressively, leading to inflation and, therefore, a decrease in the currency's purchasing power. Furthermore, and sadly, the value of fiat currency is heavily dependent on public trust in the issuing government and its economic policies, making it vulnerable to political instability and economic mismanagement. Indeed, poor economic decisions or a loss of confidence in the government can cause the currency to devalue significantly.
Cryptocurrency
Cryptocurrency exists solely in electronic form and has no physical representation like paper money or coins. The term cryptocurrency is often shortened to "crypto", is a type of digital currency secured by cryptography and built on blockchain technology. A blockchain is a "distributed public ledger" that records and verifies all transactions across a network of computers. Each "block" of transactions is linked to the previous one, supposedly forming a tamper-resistant chain. Unlike traditional currencies (supra, fiat currency) issued by central banks or governments, cryptocurrencies are decentralized, meaning they operate independently of any central authority. That means there is no governing body, government, or central bank controlling their value. Their value isn't tied to government promises or a central bank.
There are several well-known examples of cryptocurrencies, such as Bitcoin, Ethereum, and Stablecoin. Bitcoin is probably the most familiar to the public, since it was the first and is marketed as being "digital gold" because of its supposedly limited supply. Ethereum is the second-largest cryptocurrency. Stablecoin is marketed as a stable value because it is pegged to a traditional currency, like the US dollar. In other words, it is a second-order financial instrument that relies on the US dollar for its stability.
Volatility and Potential for Loss
US Dollar
Fiat currencies generally offer more price stability, although they are not completely protected from devaluation. That said, devaluation usually happens gradually, allowing people to adjust.
Cryptocurrency
Cryptocurrency values can change constantly and dramatically, meaning an investment worth thousands today could be worth hundreds tomorrow with no guarantee of recovery. Crypto assets are considered highly volatile and high-risk investments, and you could lose some or all of your investment.
Insurance and Consumer Protections
US Dollar
Deposits in FDIC-insured banks are protected up to $250,000 per person/account ownership type in case of bank failure, according to the FDIC.
Cryptocurrency
A government does not back cryptocurrency accounts and holdings in online wallets, and they are not insured by the government like US bank deposits. There are no organizations that protect against crypto losses.
Security and Scams
US Dollar
Keeping money in a bank or financial institution may reduce the risk of lost or stolen cash because they have strong, audited security measures in place.
Cryptocurrency
Cryptocurrency makes theft and fraud easier. Hackers have stolen over $2.47 billion in the first half of 2025 alone.[i] Fraudulent schemes and scams, such as Ponzi schemes and pump and dump schemes, are prevalent in the cryptocurrency space. The Trump Administration has taken a forceful position about reducing or eliminating regulations. The extent to which it will significantly regulate cryptocurrency is open for debate.
In my view, while cryptocurrency offers potential benefits like faster transactions and potential for high returns, it is crucial to understand the significantly higher risks associated with it compared to the US dollar, including lack of regulation, volatility, lack of insurance, and susceptibility to scams. Cryptocurrency, at best, is a second-order digital asset: it is not as safe as the US dollar. It is like when remoras (also known as suckerfish or whalesuckers) attach to larger marine animals such as whales, sharks, and other large fish. The relationship is symbiotic, where remoras eat dead skin, parasites, and leftover food from their hosts, providing a grooming service in return for a free meal and protection.
Trump Administration Support of Cryptocurrency
In response to your second question, let's take a short tour of how the Trump Administration is promoting cryptocurrency. For the sake of brevity, I will provide some salient ways in which cryptocurrency is being bolstered in promotional issuances, Executive Orders (and actions), legislative support, an overall supportive environment, and certain key appointments.
"Crypto Capital of the World"
Government officials and politicians have bantered about this phrase. It has been hyped as a political sales pitch, but other countries claim similar grandiose banners, such as Singapore, Switzerland, El Salvador, Portugal, and the UAE. Many cities claim similar banners, such as San Francisco, New York, Miami, London, Berlin, Lisbon, Vancouver, and Dubai.
Keeping it real, it is important to note that the "Crypto Capital of the World" is not a fixed title, and the landscape of the crypto industry is constantly evolving with new developments and regulatory changes.
The administration has openly stated its goal to make the United States a leader in the cryptocurrency industry. While ranked fourth in Coincub's 2024 Global Web3 Index,[ii] the US is the most capital-rich crypto market. It has seen significant growth in crypto ownership, particularly among corporate holders of Bitcoin. Our research has determined that the approval of Bitcoin and Ethereum ETFs in early 2024 has further propelled investor demand.
Executive
Orders & Actions
·
President Trump signed an Executive Order to
support the responsible growth and use of digital assets and blockchain
technology across all economic sectors.[iii]
· This Executive Order also revoked previous guidance on crypto from the Biden administration and established the President's Working Group on Digital Asset Markets.
· Another Executive Order in March 2025 created a Strategic Bitcoin Reserve and a US Digital Asset Stockpile, which is meant to position the US as a leader in government digital asset strategy. The establishment of a Strategic Bitcoin Reserve is clearly meant to treat Bitcoin as a reserve asset. This reserve would initially be funded by Bitcoin acquired through criminal or civil asset forfeiture proceedings. A US Digital Asset Stockpile would consist of other digital assets (excluding Bitcoin) obtained through forfeiture proceedings.
Legislative Support
The administration has advocated for legislation like the GENIUS Act,[iv] which aims to provide regulatory clarity for digital assets and position the US as a global leader in the digital currency revolution. The President has explicitly supported the bill, emphasizing its supposed potential for investment and innovation in the US digital asset market.
I have received a huge number of questions about the GENIUS Act and how it will regulate Stablecoin. This is a new law, just enacted in July 2025.
I will respond to these questions soon.
It creates a regulatory structure for the issuance and use of these digital currencies, particularly those pegged to fiat currencies like the US dollar. Ostensibly, the Act aims to protect consumers, enhance national security, and position the US as a leader in digital asset regulation. But there are some rather controversial aspects of the law.
If you have questions about the GENIUS Act and its potential impact on mortgage banking, please provide them here.
·
The administration has aimed to halt aggressive
enforcement actions and regulatory overreach that they believe stifled
innovation in the crypto industry under previous administrations.
·
Policies emphasize promoting the growth of US
dollar-backed Stablecoin and providing regulatory clarity and certainty for
the crypto industry.
·
As I mentioned above, the administration seems
to be moving away from aggressive enforcement and regulatory overreach. The
Securities and Exchange Commission (SEC) has even formed a "Crypto
2.0" task force to develop a comprehensive regulatory framework.
Key Appointments
The administration has appointed individuals with pro-crypto stances to key positions within the government, such as a Special Advisor for AI and Crypto and an Executive Director of the Presidential Council of Advisers for Digital Assets.
While some individuals within the administration and the
wider political spectrum may have varying views on the specifics, it seems
clear that the overall trend points towards policies that encourage the
development and utilization of cryptocurrencies and related technologies in the
United States, as demonstrated by their actions and stated goals.
Summary
Whereas the use of cryptocurrency in mortgage banking
presents certain benefits, I believe the risks outweigh the benefits.
Cryptocurrency may be used as collateral for a mortgage without the need to
convert it to cash and incur gains taxes. It is possible that a faster and
simpler process through blockchain technology might streamline the mortgage
process (i.e., document verification, record keeping) and maybe even lower
costs.
I can see how it would expand accessibility in financing
options for borrowers who lack traditional credit histories or verifiable
income. And, lenders could hold crypto assets to diversify their portfolios.
But, currently, I think the risk is too great to integrate
it into the mortgage origination process. It's volatile, with pricing
fluctuations potentially triggering a margin call, which would cause the
borrower to deposit additional funds or risk liquidation of the crypto
holdings. In fact, while some individuals choose crypto mortgages to avoid
capital gains taxes on their crypto, liquidating crypto assets in a margin call
could lead to taxable events.
The regulatory uncertainty is extremely concerning. The
regulatory environment for crypto-backed mortgages is still evolving and lacks
uniformity across jurisdictions. A sudden shift in regulations or government
policy regarding digital assets could significantly impact how these loans are
structured, taxed, or regulated.
Currently, only a few Fintech lenders offer crypto mortgage
products, limiting borrower options. And, importantly, crypto-backed mortgages
typically come with higher interest rates compared to conventional mortgages,
due to the inherent volatility risk. Indeed, there's limited long-term
performance data for crypto-backed loans, making it harder for lenders to
assess risk.
Finally, the infrastructure for securely storing, valuing,
and verifying cryptocurrency assets in the context of mortgages is still
developing. There are significant risks related to scams, cyber hacks, or theft
of digital assets.
Jonathan Foxx, PhD, MBA
Chairman & Managing Director
Lenders Compliance Group
[i] Crypto
losses hit $2.5B in first half of 2025, but hacks fall in Q2: CertiK, July
2, 2025, Cointelegraph
[ii] The
Global Web3 Index 2024, Compliance and Licensing, https://coincub.com,
[iii] Strengthening American Leadership in Digital Financial Technology, January 23, 2025
[iv] Guiding and Establishing National Innovation for U.S. Stablecoins Act ("GENIUS Act") is a US law enacted in July 2025.