Why the GOP needs crypto as much as crypto needs the GOP
Libertarians are finally getting their act together, but need to read the room. The McConnell-led GOP, for its part, is missing a golden opportunity
The recent infrastructure bill’s attempt to drown US crypto under outrageous compliance obligations, dressed up as a $30 billion “pay-for” that’ll actually wreck the US crypto industry, kicked a hornet’s nest of wealthy, young, diverse, apolitical-liberaltarian crypto investors in the United States. Capitalizing on this interest is very much in the interest of the GOP, but nobody told Mitch McConnell. Someone important needs to tell him.
The fact that this bill appears on the road to becoming settled law is a looming debacle for the crypto industry. The crypto industry needs friends, needs them immediately, and must avoid the offend-no-one mistakes of its libertarian predecessors (Silicon Valley), which has found itself in bed with Luddite left that still despises it, and permanently alienated from the Right.
This article is of relevance to any crypto entrepreneurs who want to understand the GOP mindset, want to build power in DC, and see that Democrats are too invested in the big-spending ancien regime to ever ally with crypto. FWIW, I heavily used endnotes to provide additional context to certain assertions, without bogging down the main article in a pedantic history lecture.
The GOP perspective: “Genuine libertarians always welcome, but F— Silicon Valley”
The Beltway GOP has good reason to be cynical about the latest wave of techy nouveaux-riches. For 20 years, the GOP defended SV as the last best frontier of unfettered capitalism, without shaking them down for so much as a dollar of campaign contributions.
The GOP then watched the awkwardly libertarian upstarts of Silicon Valley turn into the mailed fist of liberal diktat, disproportionately censoring GOP-leaning pundits and politiciansunder nebulous “terms of service” and “anti-hate policies” enforced by woke hate organizations, whose management & employees contributed ~80% of total donations and nearly 100% of much larger dark-money donations to explicitly liberal interests.
On a more case-by-case basis, to Beltway Republicans, SV’s fanatically liberal tilt is inexplicably stupid, to the point of not being worth courting.The spectacle of America’s captains of virtual industry bankrolling the Democrats’ worst elements represents a craven thirst for the dopamine rush of high-society acclaim over any commercial interest. The rampant 2020 censorwashing (outsourcing censorship to “committees” pre-stacked with liberals), e.g., Covid dissent and Hunter Biden’s corruption, was the last worst straw.
All this is to say that Republican pros, like Mitch McConnell, Ron DeSantis, etc., see the tech industry—and its latest avatar, crypto—as populated by mercs who will one-night-stand with the GOP on existential industry issues and, once established, will turn traitor, spending the next 30 years of his career sliming the GOP as “racist” or “anti-immigrant,” while underwriting a long regulatory war against Republican interests, like agriculture, mining, logging, oil, manufacturing, etc., as the “old” Silicon Valley does today. Republicans also recognize tech’s intangible interests against allying with the GOP,and is not going to waste any more time trying to change them.
The crypto industry needs to understand, and break through this hardened cynicism if it wants to build a stable, long-term GOP support base in the short term.
The crypto view: Why doesn’t anybody cooler than Ted Cruz or Cynthia Lummis want to be friends with us? ;_(
When the anti-crypto $30 billion pay-for was added into the Senate draft of the infrastructure bill in the dead of night, the crypto industry got a hard lesson in the kind of Civics 101 they don’t teach you in school. (Skip if you think you already know the full story.)
With no warning and virtually no time, a provision lethal to the US crypto industry was tacked onto the “must-pass” infrastructure bill which Mitch McConnell and roughly 20 Republican senators had already blessed.
The crypto industry immediately pointed out that this provision, which would require every single crypto transaction in the US to have an accompanying Form 1099, wasn’t possible.
The crypto industry quickly secured the support of Ron Wyden and numerous other Democrats in Congress, making Sen Maj Ldr Schumer guaranteed to lose a formal procedural vote on the amendment.
Schumer and other senior Senate Democrats were aggressively lobbied by Janet Yellen—and presumably the Wall Street banks who have paid her $7.2 million in speaking fees over the past 2.5 years—to stick with the crypto-killing provision.
At the same time, as it became increasingly obvious that the crypto amendment would not save any tax revenue and would in fact destroy lots of tax revenue, majority support for the crypto provision evaporated, and two potential compromise amendments emerged: Wyden-Lummis-Toomey, which crypto supported, and Warner-Portman-Sinema, which would’ve destroyed the Ethereum industry but applied some fig-leaf protections to Bitcoin.
Yellen registered her support for the ethereum-killing Warner amendment, if there had to be an amendment.
As the industry explained how toxic the Warner amendment was, Rob Portman, one of the big-spender Republicans who’d authored the overall infrastructure bill and just wanted to get the overall blob past the finish line, realized he’d been tricked into supporting a phony compromise by the anti-crypto lobby. He withdrew support for his own amendment and endorsed the Wyden amendment.
Schumer unilaterally ended the infra bill’s amendment process. Schumer’s decision meant formal procedural votes (majority votes) on the crypto amendment were no longer possible. The only way to amend the bill further would be by unanimous voice consent, instead of majority vote—a clearly impossible threshold since Schumer’s maneuver had already registered his support for the crypto-killing amendment (although people with better things to do than learn DC kabuki didn’t understand that at the time).
Richard Shelby (R-AL), who always headed the Senate Finance Committee during GOP control and has been Wall Street’s best friend in the Senate in the last 30 years, killed the amendment-by-unanimous-consent vote “because the overall budget didn’t have $50 billion in additional defense spending”—a totally unrealistic, dishonest explanation. (Shelby wasn’t writing the bill, and getting $50 billion of extra spending was never remotely in the cards.)
The Senate ratified a legally almost-meaningless concurrent resolution stating that it “is not the bill’s intent” to do most of what the bill says it will do. The bill goes on to the House.
My (poor) legal understanding is that if a court sees a bill that says X, and then sees (legally subordinate) language to the effect of “We don’t want the language to mean X but we haven’t figured out what X should actually mean,” then the law, until proven otherwise, is X.
The crypto industry seems to have moved on from the defeat, not coming to much more of a consensus besides “I think I just liked a Ted Cruz CSPAN video?”
Formally, every Republican senator who went on the record ended up supporting the crypto industry, except for Shelby. But I’m sure most of the other 18 Republicans who voted for the infrastructure bill would’ve stood in Shelby’s place, for a cheap price. Wyden was the only Democrat who “formally” supported crypto, but Wyden’s vote for Schumer as Majority Leader mooted Wyden’s public support.
The crypto industry should get very aggressively involved in Republican Senate 2024 primaries, as well as the 2024 presidential primary, over the next several cycles, as the GOP will probably see 50% turnover in its caucus. GOP primaries are generally sleepy, insidery games where ~10% of GOP voters in a state pick the next GOP nominee for senator. It could very easily be swayed by a passionate, large, broadly distributed bloc of voters. At the same time, crypto must differentiate itself in the GOP voter’s mind from the rest of SV.
A GOP-aligned crypto agenda is the subject of another post. But the common interests crypto has with the GOP are many:
The Fed’s out-of-control money creation is the main driver of blue-collar wage suppression today. Cheap money is not good for asset-poor US workers and the young. Cheap money accrues firstly to those closest to the source (Cantillon effect), thence to a) the scarcest assets (which ‘common’ labor never is) and b) socioeconomic structures with the highest bargaining power relative to their customer (large corporations, government workers). Private-sector workers and SMBs are the last in line for any gusher of fiat money, and since the value of money is relative, their PPP-adjusted quality of life must always drop during high inflation.
The Fed’s 0% interest rates killed small government. Americans have always (correctly) associated government spending with corruption, which is why they dislike it so much. But when the cost goes from something real to “zero,” it’s politically far more difficult to oppose.
The current fiat structure cannot self-regulate any more; the US has passed a “fiscal dominance” point of no return, in which fiscal considerations must take priority over macro/inflationary ones because of the size of debt. Pre-Covid, there was a theoretical possibility that the US could somehow, in the absence of wars, stabilize fiscal policy. As long as that possibility remained, the Fed’s dominant strategy was to optimize for institutional independence and low & stable inflation.
But that’s over now. With ZIRP and a -6%-ish annualized real rate of inflation, the US is running 5%+ deficits relative to GDP. There’s no “organically growing” our way out of this level of debt.
The only way to break the cycle of ZIRP bloating the price of durable assets relative to the price of labor, while subsidizing government corruption ad infinitum, is to legally protect a fungible, fixed-supply parallel currency, and let it freely compete against the fiat system over time. At the same time, to have market credibility and to foster faster adoption, the crypto ecosystem will have to get more truly passionate political defenders.
Under a crypto system, all government spending could theoretically be tracked, and corruption dramatically reduced. Corruption would be much harder to pull off over extended periods of time, if the federal government and publicly-identified federal counterparties all had to use crypto wallets. A crypto payment system would be a panopticon of public interest.
As we’ve seen from the Pentagon in Afghanistan, CRT in our schools, NIAID’s lying about its entanglement with the Wuhan lab, the CDC’s politics-as-policy approach to every facet of Covid, and so on, the unelected bureaucracies of America can only be trusted to be one thing: corrupt. Yet, they cannot be starved of money without raising the price of money.
Crypto has the potential to usher in a new internet that could actually jeopardize the dominance of left-captured FANG companies.
The Democratic view
I can’t speak that much for how DC Democrats look at crypto, but there are obvious ideological reasons why the Democrats will never be crypto’s friend. This post got too long already.
But in my opinion, crypto undermines every core interest to the Democrats. Crypto Inc. is fooling itself if it thinks otherwise.
The crypto industry should, of course, try to influence Democratic primaries in “blue-purple” districts/states. But promises are cheap, incumbents are very hard to unseat once ensconced, and as crypto becomes a more tangible threat to the Fed / Treasury / Big Government axis, every Democratic nominee’s other conflicting allegiances will always push them to betray whatever promises they made to Crypto Inc., regardless of their core convictions.
Where the infra bill stands
As of right now, thanks to Schumer’s maneuver ending the amendment process (at Yellen’s behest), the US crypto industry has 2 weak opportunities to reverse this legislation. It can persuade several House Democrats to vote down the infrastructure bill. That’s possible, but unlikely, particularly if any House Republicans pull a Shelby in the name of bipartisanship.
In a dictatorship-by-majority system, going against a signature initiative would mark House dissenters as traitors, invite a primary challenge if possible, and consign themselves to the backbench as long as Pelosi or one of her toadies is Speaker. Additionally, the bill would have to start over or go to conference, since the House and Senate would now have different bills. That would stretch out the process further, at a time when Joe Biden’s political fortunes are freefalling and the Democrats’ defection risks are rising by the day.
The better chance lies in reversing the crypto provision as part of the Democrats’ larger, $3.5 trillion budget. The budget itself will pass in some form, and the Republican counter to budget passage (refusing to raise the debt ceiling) wouldn’t have any effect on this provision.
In 2H 2009, as Google's then-material Chinese search business was shut out of Android-driven takeover over China’s mobile search market due to suppression of Google searches by PRC telcos, the Obama White House didn’t so much as lift a finger to help Google (over 6+ months of PRC telcos rendering 70-90% of google.cn queries as “page cannot be displayed,” thus conditioning PRC users to use the inferior Baidu mobile search alternative), and Google shuttered its China interests in frustration in January 2010.
Despite being left for dead by the Obama Administration, Google didn’t seem to take the state-sponsored abortion of their China market share personally, and only became more vocally supportive of Democrats over time.
Uber, despite having its entire comparative advantage taxed and inconvenienced to death by “progressive” urban machine diktat, and an overseas model severely constrained by historically hyper-aggressive FCPA enforcement, directed 90% of its 2020 donations to Democrats, and more money to Bernie Sanders than to all Republicans combined.
FB employees are as overwhelmingly supportive of liberal Democrats as anyone, despite 4 years of unprovoked attacks from the likes of Sens. Warren, Sanders, and the entire liberal wing of the Democratic Party, and barely-veiled threats from Democrats to censor anything they deemed “misinformation” (conservative commentary).
Twitter, in addition to being subjected to the same Democratic thuggery as Facebook (and even more zealously enforcing them), featured a “head of site integrity” (censor-in-chief) who repeatedly flaunted his partisanship, and was never punished for an obvious, longstanding, material conflict of interest.
Big Tech get most of their revenues from overseas, and doesn’t want brand association with the US nationalist party
Big Tech CEOs, at their level of wealth, place a much higher premium on their media image (what liberal journalists selectively report about them or their companies) than on raising EPS / stock price
Big Tech relies disproportionately on high-end immigrants, and feels a powerful need to publicly support them whenever the GOP suggests any changes to immigration law
The GOP can never compromise on immigration, for reasons that politics noobs don’t understand
The last time there was a US “amnesty for everyone here today, but lots of extra enforcement from now on and more strictness about the future” immigration compromise (1986), the enforcement part literally never happened
since 2008, Democratic governance = refusing to enforce any law they don’t like, especially with regard to immigration
therefore, the GOP is unable to make any kind of credible “we compromise now & trust you to fulfill your end later” trade again
therefore, the GOP will always look like jerks on this issue to outsiders, doesn’t care that they’ll look like jerks because it’s nonnegotiable, and knows that SV status-maximizers will run away at the first critical The Information story about how XYZ “supports racism” if they support the GOP
DC Kremlinologists read this as Shelby carrying water for unknown Wall Street interests, under the much more marketable guise of standing up for MOAR DEFENSE SPENDING!!, which incidentally employs lots of Alabamians.