There is a lesson here for Democrats: Get out of bed with crypto bros like Bankman-Fried and regulate the industry. For most of the last few years, the party has been divided on the rise of cryptocurrency, which is decentralized, unregulated digital currency. Warren, in particular, has pushed for more regulation, citing its potential for risk, fraud, and chaos, as well as its extreme environmental impact and the high energy required to “mine” digital coins. Others in the party, meanwhile, have insisted that Democrats should proceed more gingerly. “The project of radically decentralizing the internet and finance strikes me as a profoundly progressive cause,” New York Democratic Congressman Richie Torres told Politico earlier this year. “You should never define any technology by its worst uses.… There’s more to crypto than ransomware, just like there’s more to money than money laundering.”
Bankman-Fried was intimately connected with many Democrats via campaign contributions, including Torres, New Jersey Representative Josh Gottheimer, and New York Representative Hakeem Jeffries, who is seen as a potential successor to House Speaker Nancy Pelosi. New Jersey Senator Cory Booker told him he boasted “a much more glorious afro than I once had” while Bankman-Fried was testifying before Congress. Bankman-Fried’s emergence as a Democratic donor also came as many in the party hardened their stance on the unregulated digital currency. And yet some worried that coming down hard in a regulatory fashion would alienate potential voters, particularly young men. Others saw cryptocurrencies’ profound potential for fraud, crime, and economic collapse and insisted on action.
The ongoing fallout from FTX almost makes the question of regulation absurd: It seems possible that cryptocurrencies won’t be able to survive this collapse, which has revealed that a significant number of them are ripe with fraud and built on houses of financial cards. But Democrats have an opportunity not just to act but to unite on cryptocurrency regulations now—to stop taking money from the Bankman-Frieds of the world and to start pushing for badly needed regulations. In the spring, President Biden asked the FTC to determine a strategy “addressing the risks and harnessing the potential benefits of digital assets.” It’s clearly too late to help the many whose savings the collapse of FTX will wipe out. Few of the dozens of Democrats who took Bankman-Fried’s money show signs of returning it. They should. Then they should get to work on passing badly needed regulations to protect other investors from the next Sam Bankman-Fried and the next FTX.