The Democrats Have a Crypto Problem

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As the second-largest donor to the Democratic Party, Sam Bankman-Fried had reason to be proud on election night on November 8 as his preferred party outperformed expectations. Still only 30 years old, Bankman-Fried (popularly known as SBF) had amassed a net worth estimated in the neighborhood of $24 billion thanks to his founding of FTX, a crypto currency exchange based in the Bahamas. His wealth turned him into an instant power player. SBF had donated at least $40 million of his own money to the Democrats in the midterms. Colleagues at FTX had also spent $70 million lobbying Washington on pet causes, including beefing up pandemic prevention and crypto deregulation.

SBF’s mix of digital savvy, extreme wealth, youthfulness, and love of technocratic solutions made him an easy fit for the centrist Democrats who were eager to restore their dominance of the party in Joe Biden’s Washington. Fittingly, Bill Clinton and Tony Blair, two of the shining knights of an earlier centrism, made a pilgrimage to the Bahamas for a conference organized by FTX this past April. Photographs of the conference show the aging neoliberal politicians, respectfully attired in formal clothes, looking with awe at the crypto wunderkind, dressed like a beach bum in shorts, a T-shirt and sneakers. The clothes told a story: The former world leaders were dressed to impress, while the young billionaire was secure enough to flout conventions. The plutocrat was king; the politicians were courtiers.

As a rising prince among Democrats, SBF could be proud that he was reshaping a party that looked in good shape to hold the presidency and the Senate. SBF had, Alex Seitz-Wald reported on NBC, given money to “House Majority PAC, which took $6 million; Senate Majority PAC, which took $1 million; the Democratic National Committee, which took over $900,000; the Democratic Congressional Campaign Committee, which took $250,000; and the Democratic Senatorial Campaign Committee, which took over $66,000.” In interviews, he boasted that he planned to keep spending in future elections, promising “north of $100 million” for the 2024 presidential election.

These are figures to make political consultants and candidates salivate. But it was not to be. The day after the 2022 midterms, financial reporting indicating dubious practices at FTX led to a cash crunch. By November 11, FTX was bankrupt and SBF’s reputed billions had disappeared. SBF himself, Bloomberg declared, had no material wealth. Press reports started describing FTX as a pure Ponzi scheme, perhaps the biggest con game in history. Speculations are rife over criminal justice charges.

What are we to make of SBF’s rapid rise and just as quick fall? It’s a story that has political implications that go well beyond ordinary business news. Republicans on the far right are already hard at work making SBF into a meme, evidence of Democratic Party corruption. The whole crypto industry is shaky, and the fall of FTX might just be the start of a wider collapse. If that happens, then the prominence of SBF will become a political weapon, despite the fact that Republican politicians are even more likely to take crypto money than their Democratic counterparts.

The problem Democrats have is asymmetry of ideology. Republicans have an ideology of business dominance, so there is no inconsistency in their taking crypto money while advocating keeping the industry unregulated. But Democrats at least pay lip service to the idea that unrestrained capitalism requires some taming. Democrats taking crypto largesse are open, rightly so, to accusations of hypocrisy and worse, corruption.

Among Democrats, figures like Representative Sean Maloney (recently defeated in the midterms), Senator Kirsten Gillibrand, and New York City Mayor Eric Adams have all emerged as cheerleaders for crypto. In June, Gillibrand went on the CNBC show Squawk Box and touted crypto as something in which people should comfortably invest part of their retirement savings. In a stunt in November of 2021, Adams accepted part of his salary in Bitcoin.

As The Lever reports, “Bankman-Fried and FTX helped launch a crypto lobbying group called the Association for Digital Asset Market (ADAM), which worked to kneecap the aggressive new leadership of the Securities and Exchange Commission. Using a bill pushed by Senator Kirsten Gillibrand (D-N.Y.) and Cynthia Lummis (R-Wyo.), ADAM instead tried to position the far-smaller and more poorly-funded Commodities Futures Trading Commission (CFTC) as its exclusive regulator.”

It’s not just politicians who were happy to become SBF’s servants but also policy wonks and strategists. There’s a particular political skew to SFB’s ideological comrades that is worth noting. Alex Seitz-Wald claims that “Bankman-Fried’s money also made sure to support candidates and causes in both wings of both parties, for instance, retaining progressives like Data for Progress founder Sean McElwee while joining with groups like AIPAC to support moderates as they pummeled progressives with hard-hitting TV ads in Democratic primaries.” But this distorts the picture. While McElwee has worked for progressive candidates, he’s very much a gun for hire.

To better understand SBF’s ideology, it’s worth looking at those thinkers he has an affinity with, notably the journalist Matthew Yglesias and the political consultant David Shor. This group often styles themselves as “popularists.” They believe the Democratic Party has been too eager to embrace identity politics and slogans like “defund the police.” In order to appeal to more moderate voters, this group suggests that Democrats should lower the temperature on social issues.

Given the thinkers he has an affinity for, it’s not surprising that SBF has been able, with mixed results, to work closely with AIPAC to try to defeat Democrats like Nina Turner (who lost) and Andrea Salinas (who won) in the last set of primaries.

On his substack, “Slow Boring,” Yglesias has written two interesting quasi-apologies explaining that SBF has admirable traits. In May, Yglesias argued that SBF was not motivated by greed but rather by philanthropic benevolence. SBF, Yglesias explains, is an adherent of “effective altruism” (EA), a strain of utilitarianism that encourages “giving by earning.” The idea is that the best way to help the world is to become extremely rich and then use the money to promote necessary long-term projects that politicians normally ignore. Believers in effective altruism advocate for causes like preparedness for pandemics, asteroids, and threats from artificial intelligence (believing that there is a real danger that sentient computers could one day try to destroy humanity).

Yglesias lays a heavy emphasis on biography. “SBF was raised by a leading consequentialist moral theorist,” he writes. This is a thin argument. It’s by no means clear that being the child of a Stanford University law professor who teaches ethics makes you inherently an ethical person. Yglesias adds, “But I think when you consider SBF’s literally life-long investment in consequentialist and EA ideas (he was blogging about utilitarianism as a college student), it’s clear that far from his political spending being a front for cryptocurrency, the cryptocurrency businesses just exist to finance effective altruism.”

In an interview with Kelsey Piper of Vox conducted after his business collapsed, SBF doesn’t come across as the high-minded moralist that Yglesias portrayed. SBF admits that his call for “good” regulations was “just PR” and his real attitude was “fuck regulators.” Piper asked if “the ethics stuff” was “mostly a front?” SBF admits, “Yeah. I mean that’s not *all* of it. But it’s a lot.” Piper then wondered whether ethics for SBF was just “a game with winners and losers. The former billionaire responded: “Ya. Hehe.… It’s what reputations are made of, to some extent. I feel bad for those who get fucked by it.” (SBF’s responses were in the form of mostly unpunctuated semiliterate DMs. I’ve cleaned them up for the sake of readability.)

On Thursday, Matthew Yglesias published a piece revisiting the SBF question. He admits that SBF might have hurt the very causes the alleged philanthropist championed. But Yglesias continues to try to put a good spin on SBF’s actions. Yglesias argues,

He gave tens of millions of dollars to get Donald Trump out of the White House (and also quite a bit to Democrats in the 2022 cycle). In this case, the cause he favored prevailed. But it prevailed narrowly. Any political success is a highly collective endeavor and no one person is responsible for any result. But money does matter in politics, and some of these races—including very notably the 2020 electoral college—were very close. It’s plausible that without SBF’s money, Trump would still be in the White House.

Like a lot of Yglesias’s writing, this is incoherent. How can you both say “no one person is responsible” for Joe Biden’s 2020 victory (which is true) and that SBF’s money was the difference between victory and defeat? In any case, the total cost of the 2020 election is estimated to be $14 billion. Which means that the tens of millions SBF donated were dwarfed by the sheer scale of spending by millions of other people. Claiming that SBF’s money helped Biden win will, ironically, only fuel right-wing conspiracy theories.

Yglesias continues to argue that SBF gave money to “good” causes. But is that true? For one thing, by SBF’s own admission, his goal in spending was to gain power to fight regulation. One favorite SBF charity is pandemic preparedness. To that end the Bankman-Frieds’ family foundation gave $5 million to ProPublica, which prepared a report on the lab-leak theory that was widely denounced as riddled with xenophobia and bad translations.

Underlying the whole ethos of effective altruism is the idea that the rich know best. The people who make the most money are somehow credited with having the best long-term interest of humanity at heart.

To see what’s wrong with this thinking, you’d have to have some familiarity with human history. Alas, Bankman-Fried is militantly anti-intellectual. As he told an interviewer for Sequoia Capital’s site, “I think, if you wrote a book, you fucked up, and it should have been a six-paragraph blog post.”

The great Marxist historian Perry Anderson once described utilitarianism as “a militant, single-minded creed of capital accumulation and cultural nihilism.” That was surely unfair to Jeremy Bentham and John Stuart Mill. But it perfectly describes Sam Bankman-Fried.

Unfortunately, centrist Democrats have decided to align themselves with this mixture of greed and militant stupidity. In doing so, they’ve given a massive gift to the Republicans—particularly the extreme right. If, like Yglesias, they really are believers in effective altruism and consequentialism, they might want to ponder the long-term impact of their corrupt politics.