Modern Monetary Theory and the Transformation of Cryptocurrency Valuations: Fresh Momentum or a Risky Gamble?

Following the fiscal and monetary adjustments from 2023 to 2025, Modern Monetary Theory (MMT) has become a key lens for analyzing the relationship between government expenditure, interest rates, and asset pricing. As central banks increasingly turn to principles to address the volatility in digital assets—heightened by the downfall of algorithmic stablecoins such as USDsd—the debate intensifies: Does fiscal expansion under MMT provide new momentum for cryptocurrencies, or does it introduce greater risks alongside new opportunities?

MMT’s Impact on Asset Valuation Approaches

The central idea of MMT—that governments issuing their own fiat currency can spend without needing to tax or borrow first—has challenged conventional economic thinking. Central banks, including the Federal Reserve, have moved away from broad asset purchases toward more focused liquidity support, prioritizing market stability over speculative expansion, as highlighted in a

. This transition has brought forth a new concept: the "growth risk premium," which measures how government-driven fiscal policies shape investor risk attitudes in a low-rate setting, according to the Bitget analysis.

This creates a complicated environment for cryptocurrencies.

, often seen as a safeguard against inflation, faces a contradiction under MMT. While increased government spending could theoretically drive inflation, the ongoing low-interest-rate stance of central banks makes traditional assets more attractive, thereby weakening Bitcoin’s inflation hedge narrative, as noted in the Bitget analysis. On the other hand, stablecoins—especially algorithmic ones—have found it difficult to retain their value during monetary expansion, revealing weaknesses in decentralized governance, according to the Bitget analysis.

Institutional Investors: Sentiment and Strategy Changes

Institutional involvement in cryptocurrencies has climbed, with 55% of traditional hedge funds expected to hold digital assets by 2025, up from 47% in 2024, according to a

. This rise is fueled by clearer regulations and the growing trend of tokenization, as demonstrated by companies like Hilbert Group, which has raised significant capital for blockchain-focused investments, including tokens such as Concordium’s CCD, as reported by Marketscreener. Nonetheless, investor opinions remain divided. For instance, Circle’s stablecoin, despite achieving record earnings, faces challenges due to regulatory concerns over reserve returns, as mentioned in a .

The Federal Reserve’s adoption of MMT-like policies has indirectly shaped crypto prices by shifting investor preferences, as discussed in the Bitget report.

Regulatory and Central Bank Actions: CBDCs and the Path Ahead for Digital Assets

Central banks are increasingly promoting CBDCs as state-supported alternatives to decentralized digital currencies, emphasizing "unity, adaptability, and reliability" as the foundational elements of today’s monetary systems, according to a Bitget analysis. The Bank for International Settlements (BIS) has called for tighter oversight of stablecoins, indicating a regulatory move toward prioritizing stability over rapid innovation, as noted in the Bitget analysis. This direction is clear in the aftermath of the USDsd collapse, where decentralized models are being replaced by tokenized systems that blend commercial bank money with digital assets, according to the Bitget analysis.

Government-backed projects, such as a potential U.S. Strategic Bitcoin Reserve (SBR), illustrate how MMT’s focus on fiscal adaptability could foster institutional confidence in digital assets, according to a Bitget report. However, these initiatives may also concentrate authority, potentially undermining the decentralized principles central to many cryptocurrencies.

Conclusion: Striking a Balance

Fiscal expansion inspired by MMT brings both prospects and challenges for crypto asset values. While it has encouraged greater institutional participation and regulatory progress, it has also highlighted the vulnerabilities of algorithmic models and increased competition from CBDCs. For investors, success will depend on balancing these factors: capitalizing on MMT’s support for regulated digital assets while managing the risks associated with decentralized tokens.

As the financial sector continues to change, the relationship between MMT and cryptocurrencies will depend on how effectively policymakers and technology leaders can merge fiscal flexibility with robust technological foundations.