Economist Andrew Hunt believes the global economy is at an inflection point in 2025, with increasing fragility and uncertainty driven by potential trade wars, financial tightening, and inflationary risks. Hunt highlights a significant shift in U.S. regulatory stance, with financial authorities now allowing crypto assets to be used as collateral in mainstream finance, a stark departure from earlier policies that largely excluded digital assets due to their volatility.

Hunt sees this regulatory shift as part of a broader trend where financial authorities are seeking unconventional ways to sustain economic growth amid slowing momentum and supply-side constraints. He likens this pivot to an 18th-century financial experiment led by Scottish economist John Law. Law’s scheme fueled a speculative mania in France by creating a bank that issued loans for people to invest in a nearly non-existent company. That company, in turn, used those investments to buy French government debt—an unsustainable loop that eventually collapsed.

In today’s context, Hunt envisions a similar dynamic where the SEC encourages lending against crypto, driving up digital asset prices. The expanding crypto ecosystem, particularly stablecoins, would then generate substantial demand for Treasury bills, which make up a large portion of stablecoin reserves. This "crypto collateral" mechanism could potentially provide up to $500 billion in funding for the U.S. government.

While this new mechanism could provide much-needed liquidity, Hunt warns that it carries significant risks. A crypto-fueled asset boom could quickly turn into a destabilising bust, sending shockwaves through both digital and traditional markets. Given crypto's growing ties to mainstream finance, a sharp downturn could lead to widespread liquidations, amplifying market volatility.

Despite these dangers, Hunt argues that U.S. authorities may have little choice but to embrace creative debt monetisation strategies. Allowing interest rates to rise naturally could prove disastrous given the current debt burden, forcing policymakers to resort to measures like quantitative easing or yield curve control.

Over the medium term, Hunt anticipates a stagflationary environment, where supply chains struggle to meet liquidity-fueled demand. He advises investors to focus on alternative stores of value and remain agile in navigating the potential market turbulence as the "crypto collateral" theme unfolds.

While the use of crypto collateral may provide a short-term liquidity boost, he sees it as a high-risk move that could accelerate inflation and financial instability. For investors, capital preservation and flexibility will be key in navigating what could be an unprecedented period of economic uncertainty.