In 2008, the world watched as the U.S. financial sector imploded, taking the global economy down with it. What began as a fever-pitched real estate boom ended in a gut-wrenching collapse that wiped out trillions in wealth. As a lawyer I tried to help dozens of clients who were financially devastated. Over the next few years what we all realized is that 2008 wasn't just carelessness, greed or even a failure of economics; it was a failure of oversight.
Now, with Bitcoin flirting with $100,000 and meme coins dominating headlines, there’s a troubling sense of déjà vu. History has a way of rhyming, and if you listen closely, today’s cryptocurrency market sounds eerily similar to the lead-up to 2008’s financial disaster. Let’s unpack this.
The Wild West of 2008
In the early 2000s, the real estate market looked unstoppable. Banks handed out loans like candy on Halloween, often to borrowers who couldn’t afford them. Mortgage-backed securities, a fancy name for bundles of these loans, were sold to investors as “safe” assets. The problem? These securities were built on a house of cards: subprime loans.
Regulators didn’t step in. Laws designed to keep risk in check were either outdated or ignored. Wall Street got greedy, Main Street got careless, and Washington stayed asleep at the wheel. The result? A bubble inflated until it couldn’t anymore. When it burst, it wasn’t just homeowners who suffered. Entire financial institutions collapsed, and the global economy went into freefall.
"Only when the tide goes out do you discover who's been swimming naked.” -Warren Buffett
The end result, an estimated $16 trillion loss in household wealth in the United States alone, as reported by the U.S. Treasury. This figure accounts for the collapse in home values, retirement accounts, and investments. Globally, the total economic cost of the crisis is incalculable but likely exceeds tens of trillions of dollars, factoring in unemployment, lost GDP, and government bailouts.
Beyond the monetary loss, millions of people lost their homes, jobs, and savings, creating a ripple effect that reshaped economies and lives for years. For perspective, it took over a decade for many economies to recover fully, underscoring the severity of the crisis.
Enter Cryptocurrency: The New Frontier
Fast forward to today. Cryptocurrencies like Bitcoin and Ethereum, alongside a dizzying array of meme coins, are riding a wave of speculation just like the real estate market of the early 2000s. But look under the hood, and the same vulnerabilities are glaringly obvious. And while in a similar fashion, digital assets like NFTs, Bitcoin Ordinals, Runes and others share similar characteristics, risks, and possible downsides, for purposes of this article, I’m going to focus my thoughts and concerns on traditional cryptocurrency.
Like 2008, this is a largely unregulated market. Exchanges pop up overnight, offering coins with no intrinsic value to eager investors chasing outsized returns. Derivatives and leverage trading—reminiscent of mortgage-backed securities—amplify risk. And just like real estate in the 2000s, cryptocurrency has become the “must-have” asset, with everyone from retail investors to major corporations rushing to get in.
For example, the allure of Bitcoin at $100,000 is undeniable. But here’s the problem: price isn’t value. Much of the current market is driven by marketing, branding, misinformation, speculation and politics, not utility. I invite you to watch Molly White’s post-election overview video (link at end of post). And while we're both here let me share one final thought, meme coins, in particular, mirror the speculative excesses of subprime loans—shiny on the surface, toxic underneath.
To be clear, I fully appreciate the potential of Web3 and decentralized technologies to transform business and society. From blockchains and smart contracts to DAOs and tokenized AI driven tools, these innovations are undeniably exciting. Having said that, in this article I'm focusing on specific digital Web3 assets like Bitcoin and Ethereum that consumers and businesses are leveraging for transactions and investments. When considering my message, it’s crucial to keep this distinction in mind—because in this conversation, the details matter.
The Howey Test
To start things off it's important to have context. The Howey Test is a legal framework established by the U.S. Supreme Court to determine whether a financial arrangement qualifies as an investment contract under U.S. securities laws. If something is considered an investment contract, it is regulated as a security by the Securities and Exchange Commission (SEC). This test is designed to protect the consumer.
Under Howey, an arrangement is considered an investment contract (and thus a security) if it meets these four elements:
1/ Investment of Money: There is a commitment of money or other valuable assets. For example, buying shares in a company or purchasing cryptocurrencey.
2/ In a Common Enterprise: The investor’s money is pooled with others or tied to the success of a broader venture. This means funds from investors are collectively used to develop a product or project.
3/ With an Expectation of Profits: Investors expect to earn financial returns from their investment. This would be buying tokens during an Initial Coin Offering (ICO) with hopes the value will increase.
4/ Derived from the Efforts of Others: The profits are primarily dependent on the managerial or entrepreneurial efforts of a third party. A cryptocurrency’s value hinges on the development and promotion by its creators.
Under this lens, the SEC has shown particular interest in regulating Initial Coin Offerings (ICOs) and certain altcoins, where tokens are sold as part of fundraising campaigns with promises of future utility or profit.
Throughout this article, I’ll be referring to these items as “cryptocurrency, cryptocurrencies or coins.” For ease of understanding, I’ll also be focusing my discussion on Bitcoin but the same analysis and concerns apply to most, if not all, ICOs and related digital financial assets.
As you continue to read this article please consider the following. I don’t believe we should overlook the Howey Test simply because the cryptocurrency industry wants us to. What’s it's motive? Ask yourself this: who truly benefits by pushing Howey aside—the industry or you?
Regulation: The Missing Piece Then and Now
In 2008, the lack of meaningful regulation allowed Wall Street to gamble with the global economy. Today, the cryptocurrency market operates in a similarly lawless environment. There are no universal rules governing how coins are issued, traded, or valued. Exchanges act as both referee and player, a conflict of interest that would be unthinkable in traditional finance. Now, with the new administration telling voters it’s going to champion a policy of deregulation in the tech sector while openly embracing cryptocurrency, the echoes of pre-2008 are deafening.
Just as policymakers in the early 2000s touted deregulation as the path to economic growth and innovation—allowing banks and lenders to create increasingly risky and opaque financial products—today’s push to loosen restrictions on cryptocurrency carries a familiar, dangerous optimism. The administration’s enthusiasm for fostering tech and crypto innovation, for either well-intentioned or more likely, self-serving conflict of interest compounded reasons, risks sidelining critical safeguards. By prioritizing the potential for growth over the need for oversight, this approach mirrors the blind faith that allowed real estate markets to spiral out of control 15 years ago.
While I remain optimistic about Web3 technologies—like decentralization, AI-driven digital tokens, and smart contracts designed to make businesses faster and more efficient—my perspective on cryptocurrencies has shifted dramatically this past year and especially, since the election. The devastating decisions and unmistakable echoes of historical financial mistakes promised to be made by the new administration forced me to reassess my position. It’s hard to ignore the similarities between today’s unbridled crypto enthusiasm and the reckless overconfidence that fueled past economic collapses.
The parallels are striking: in both eras, the absence of guardrails is celebrated as a necessary risk for progress. But as history shows, unbridled markets often lead to unintended consequences. The current lack of universal standards governing crypto valuations, coupled with exchanges operating without third-party checks, creates an environment ripe for instability. Without a balance between innovation and regulation, the promise of crypto could easily follow the same path as subprime mortgages—once a golden ticket, now a cautionary tale.
Decentralization—the very ethos of crypto—is a double-edged sword. While it promises freedom from centralized control, it also leaves investors unprotected. Hacks, frauds, and outright scams are rampant. Without a regulatory framework, there’s no safety net for the inevitable fall.
I guided clients through the chaos of the 2008 market collapse—I’ve witnessed firsthand the devastation it brought to lives and livelihoods. Today’s unregulated cryptocurrency market is strikingly familiar, and for many of us who have been around the block once or twice, impossible to ignore.
Crypto’s Leadership Crisis: The Blind Leading the Blind
There’s another element that needs to be addressed: much of the leadership driving momentum in the cryptocurrency space feels more like a frat party than a financial think tank. Of course, there are exceptions—especially with professionally managed ETFs and similar products—but too often, everyday buyers and investors are swayed by hype-driven influencers with the gift of gab and no background in national or global finance.
These individuals make loud, persuasive investment recommendations in Discord chats and Spaces, creating a frenzy of speculation. It’s like a digital reincarnation of The Wolf of Wall Street or Charles Keating of the Lincoln Savings and Loan scandal—only this time, they’re dressed in hoodies, armed with buzzwords like HODL, FUD and Rekt, and operating in an ecosystem where oversight is optional and the disclosure of conflicts of interests rare.
I’m watching, through my lens as a lawyer, decisions being driven by FOMO, first-name camaraderie (referring to people they haven't met and really don't know at all), and an exclusive “bro club” vibe—completely devoid of due diligence. It’s a playground for fast-talking personalities leading countless gullible investors straight into a minefield of conflicts of interest and possible financial losses. Add all of this together and here’s what you get:
A Bubble in the Making
All bubbles share the same DNA: unbridled enthusiasm, easy money, and a refusal to believe the party will end. Real estate in 2008 checked every box. Cryptocurrency today isn’t far behind.
Consider this: In 2007, homeowners believed their property values would keep climbing forever. Today, you can go to any Space, Discord or YouTube channel and hear “experts” predicting Bitcoin will hit $1 million. The psychology is identical. And just as real estate’s collapse revealed the rot beneath the surface, a downturn in crypto could expose the market’s fragility.
I sounded a similar alarm back in 2021 about NFTs, and if my prediction about cryptocurrency holds true, the fallout could be 1,000 times more catastrophic. Frankly, I hope I’m wrong—but I don’t think I am.
If the cryptocurrency market were to experience a crash similar to the 2008 financial crisis in the next year or two, the financial impact on consumers could be devastating, with losses potentially reaching trillions of dollars globally. Here’s a breakdown of why and how this could unfold:
The current total market capitalization of cryptocurrencies is approximately $3 trillion as of late 2024, with Bitcoin leading at nearly $100,000 per coin. A catastrophic crash—akin to the 2008 collapse—could wipe out 50-80% of this value, resulting in losses of $1.5 to $2.4 trillion. This figure only accounts for direct investments and does not include derivative losses or leveraged positions.
A significant portion of cryptocurrency ownership is now in the hands of retail investors—ordinary people seeking high returns. These investors often lack the diversification and financial cushion to absorb such a collapse. For millions of families, the loss of cryptocurrency holdings could mean losing savings, college funds, or even retirement security.
Over the past year, institutional investors—banks, pension funds, and corporations—have significantly increased their exposure to cryptocurrencies. If the market crashes, the ripple effect could destabilize other financial sectors. What we saw with the Sam Bankman-Fried FTX nightmare would pale in comparison to what could happen. For example, a major loss in Bitcoin-backed loans or cryptocurrency-linked ETFs could drag down broader investment portfolios, much like mortgage-backed securities did in 2008.
The broader blockchain and cryptocurrency industries employ hundreds of thousands of people globally. A crash could lead to mass layoffs, the shuttering of exchanges, and the collapse of related businesses, from mining operations to fintech startups. This economic contraction could exacerbate the overall financial hit to consumers.
Unlike traditional financial markets, cryptocurrencies operate in a largely unregulated space. Without the safety nets of deposit insurance, clear legal protections, or federal bailout mechanisms, investors could find themselves with no recourse to recover their losses, amplifying the economic pain.
While the exact numbers would depend on the scale and triggers of the crash, a conservative estimate places potential global consumer losses in the range of $2 to $5 trillion, with broader economic consequences extending far beyond. The fallout would echo the systemic failures of 2008, further underlining the urgent need for regulation to prevent such a scenario.
When the tide goes out, as Warren Buffett famously said, you see who’s been swimming naked. A significant crypto correction could bankrupt exchanges, wipe out investors, and send shockwaves through the broader financial system, especially as traditional institutions deepen their exposure to digital assets.
What Can Be Done?
The lessons of 2008 couldn’t be clearer: regulation isn’t the enemy—it’s the guardrail that keeps markets from veering into disaster and leaving people to pick up the pieces. Without it, markets crash, and lives are upended.
For cryptocurrency to thrive, it needs thoughtful and balanced oversight. Exchanges must be held to higher standards of transparency, disclosing risks, reserves, and trading practices to ensure accountability. At the same time, safeguards against fraud and manipulation are essential to protect investors from falling prey to bad actors. And because cryptocurrency is a borderless market, regulation cannot stop at national borders—it must be a global effort to create consistency and trust across the industry. Without these guardrails, the promise of crypto could quickly turn into another preventable tragedy.
For example, while the U.S. grapples with how to approach cryptocurrency regulation, the European Union is already taking decisive steps to ensure public financial safety. Through initiatives like the Markets in Crypto-Assets (MiCA) regulation, the EU is creating a framework to govern the issuance and trading of digital assets. MiCA aims to increase transparency, protect investors, and prevent systemic risks by establishing strict requirements for crypto companies, including capital reserves, operational transparency, and anti-money laundering protocols.
The EU’s proactive stance seeks to balance innovation with accountability, positioning itself as a leader in fostering a safer, more sustainable crypto ecosystem. This strategy reflects the lessons learned from past financial crises, emphasizing the need for guardrails to protect the public while still allowing the market to grow.
At the same time, the incoming U.S. administration under Trump is signaling a starkly different approach. Officials have expressed intentions to deregulate the tech industry and specifically, cryptocurrencies, aiming to position the United States as a global leader in the crypto space. This strategy reportedly includes plans to replace current regulatory leadership known for taking a stringent stance on digital assets. Ana James and I discussed many of these issues during last week’s Metaverse Bar Association presentation, “What to Expect in 2025: USA, European & Caribbean Regulatory Updates” video (link at end of post).
While proponents argue that this deregulatory approach is designed to foster innovation and economic growth, I can’t help but worry about the potential for heightened market volatility and diminished investor protections. The parallels to the pre-2008 financial environment, where lax oversight fueled systemic risks, are hard to ignore. Frankly, I believe much of the rhetoric by the incoming new administration around cryptocurrency deregulation was more about securing votes than enacting meaningful policies—reminiscent of the “build a wall and Mexico will pay for it” narrative. However, if deregulation moves forward, I foresee many of the concerns discussed in this article becoming a reality.
Sure, critics argue that regulation stifles innovation. But ask anyone who lost their home in 2008 if they’d prefer a little less “freedom” and a little more security.
The Takeaway
The cryptocurrency market feels unstoppable right now, just as real estate did in 2006. But history has a nasty habit of humbling those who ignore it. Without significant changes, the current crypto frenzy could end in the same kind of devastation we saw in 2008.
If you’re in the market, be smart. It’s not about chasing quick gains—it’s about building lasting financial security. And if you’re on the sidelines? Stay vigilant. This could turn out to be one of the most groundbreaking financial experiments—or one of its biggest catastrophes.
Because as we learned the hard way in 2008, what goes up can come crashing down.
Do your due diligence and be ready for when the tide goes out.
Mitch
Mitch Jackson is a lawyer, mediator, creator, writer, and technology enthusiast. Stay connected on Bluesky. https://bsky.app/profile/mitch.social
More posts here https://whtwnd.com/mitch.social
Links:
1/ Molly White's video https://youtu.be/06DGU_o8h5A?si=LRdGOl3uyBXPzWR-
2/ “What to Expect in 2025: USA, European & Caribbean Regulatory Updates” https://youtu.be/DJlAm5M5OMs?si=G2_CsONCk4lf7jj-
