Thursday, July 25, 2024

The Clock Is Ticking for Democrats on Crypto

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Last week, crypto was in the news yet again. Donald Trump declared himself an unabashed supporter while unveiling a new line of mugshot NFTs at Mar-a-Lago. On the same day, the Biden Administration announced it would veto efforts to undo a widely-disliked SEC accounting bulletin that prevents the custody of crypto by many firms. 

The stories underscored how crypto has become yet another battleground for this year’s presidential election. But for many Democrats, the Biden Administration’s hardline felt as tragicomic as watching Sideshow Bob step on dozens of rakes, again and again.

At the rate things are going, crypto owners may be the straw that breaks the Biden campaign’s back. According to Paradigm polling from March, while Biden is losing 44%-43% among non-crypto owners, he is losing 48-39% among the 20% of voters who own crypto. And this is a change from 2020, when crypto owners recall voting for Biden by 43%-39%.

As Democrats, we would like to see Biden give people in crypto a reason to believe in him. According to polls both of our organizations have done, about 20% of registered voters own crypto. Owners of crypto skew young, but they are of all partisan stripes. About 20% of Democrats own crypto, about 20% of Republicans own crypto, and about 20% of independents own crypto. People vote (or don’t) for many reasons, but being anti-crypto is being taken as a proxy for being anti-innovation, anti-tech, and anti-change. The wounds to the campaign are self-inflicted.

Crypto should not be a partisan issue. No technology should be. The idea of being pro or anti crypto should be as ridiculous as describing yourself as coming out in favor of computers or against toaster ovens. Yet, under this administration, we, lifelong progressives who have a healthy skepticism of technology, have watched with growing concern as our party has cast the entire digital assets industry as villains. Nowhere is this more clear than with the SEC under Chair Gary Gensler. The SEC Chair testified to Congress early in his tenure that there was a need for legislation on crypto to give the SEC critical additional authority to regulate the space. Over the following year, he erased that reasonable approach in favor of fighting with his fellow regulators, unceasingly attacking the industry in the press, and engaging in a “sinners in the hands of an angry god” campaign against the space.

With some notable exceptions, the agency has shut its doors to the entire industry and made clear that there is nothing it can do to work with Chair Gensler. The Chair has provided no path to compliance for the industry, sending a singular message to crypto: I demand your destruction. 

This mindset has not bled throughout the entire Administration. There are some agencies and regulators who have not positioned themselves with such hostility. But there has also been little meaningful pushback at the top when it comes to reining in Gensler’s antics. Indeed, the White House’s statement calling for a veto of efforts to change SAB 121 (the rules that severely restrict who can custody crypto) was viewed by many as a vote of support for the Chair’s entire approach to crypto. 

Happily, some Democrats in Congress have tried to create space from the SEC. Notably, 21 one voted to overturn SAB121, demonstrating that it’s not just industry actors who perceive political bias here. 

Both of us are progressives in crypto and think the party is making a mistake if itby lets a few loud voices dictate party-wide policy. Sheila got into blockchain after a decade in nonprofit law and civic tech, because of concerns around big data monopolies and inequity in the movement of money across borders. Justin got into crypto after working in and out of government because it provides an open space to build technology without control by a single entity. The idea of a decentralized platform that is owned by tens of millions is a reprieve from our current world of both tech and finance, filled with enclosed spaces ruled like feudal fiefs.

While headlines focus on the worst actors, the reality is that the industry is not a monolith. Responsible firms have been calling for regulation for years, even though they know that regulation will create potentially complicated and expensive compliance requirements. But to a large extent Democratic leaders have ignored them. Why? When did Democrats become afraid of legislating and regulating? Why are Democrats choosing to pursue aggressive approaches in a conservative judiciary? We’re in the upside down.

It’s not too late to change course. Democrats do not need to hang a giant “I 💙Crypto” sign on the DNC to appeal to crypto owners; merely saying that they think crypto is an innovation that requires reasonable regulation would help immensely. But if Democrats don’t at least try to appeal to this voting bloc, they risk sending them over to Donald Trump. In an election as important as this one, with Biden down in the polls, Democrats should be looking to get crypto voters into the tent, not thoughtlessly driving them away.

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