Stephen Diehl

How Democrats Failed on Crypto

It's hard to look back at the previous US administration and not recognize the near complete regulatory failure on the crypto issue. This failure has now metastasized into a serious political machine on Capitol Hill, becoming a giant fountain of corruption that pools dark money from unknown sources abroad into our politics and fuels far right extremist movements. Nothing embodies this naked corruption more than the Trump memecoin, which directly fuels policial corruption by providing an unregulated means of selling access to the current administration, the most brazenly corrupt act in the history of the American presidency.

While this pay-to-play executive branch token is new, it should come as no surprise to anyone. It is the apotheosis of exactly what crypto was designed to do: fuel corruption, crime, and undermine the state. What was once a small brush fire that could have been easily extinguished by regulators and a more proactive executive branch is now a raging forest fire. The crypto industry is now deeply entwined with political corruption and has become a major political machine for the MAGA movement.

Unfortuntately, this pattern of regulatory hesitation when confronted with corporate and financial interests has become a concerning hallmark of Democratic governance in the last two decades. Just as the Obama administration's "too big to jail" approach allowed financial institutions to escape meaningful accountability through settlements rather than criminal prosecutions, the Biden administration's fragmented approach to crypto regulation created a regulatory vacuum that the industry eagerly exploited. There are also stark parallels to how multi-level marketing companies leveraged political donations and claims of entrepreneurship to avoid scrutiny in the 1970s. There is nothing new under the sun, this foolishness repeats itself with such monotonous precision.

All of this did not have to happen. Democrats had all the levers of power neccessary to curtail this dark money machine run amok, but they didn't use them. The crypto policy of leaders like Joe Biden, Chuck Schumer, Ro Khanna, Nancy Pelosi, Kamala Harris, and Maxine Waters was a complete failure. But failure is something that we can learn from and fix. But it's paramount that we understand that inaction, equivocation, and strategic ambguitiy did not work the last time and they won't work the next time either. Hopefully by acknowledging these shortcomings and learning from them, the party can develop more effective strategies for preventing these kind of inherently-destabilising and anti-democratic technologies from growing without check in the future.

Party Unity & Messaging

The Democratic Party's approach to cryptocurrency regulation was characterized by deep internal divisions that prevented cohesive policy action. These divisions manifested as competing factions pushing the party leadership in opposing directions.

On one side stood regulatory hawks led by Senator Elizabeth Warren (D-MA) and Representative Brad Sherman (D-CA), who consistently advocated for strict oversight of crypto. Warren and her allies emphasized crypto's potential risks to consumers, financial stability, and national security. They regularly highlighted concerns about money laundering, sanctions evasion, and fraud within the crypto ecosystem. This faction viewed cryptocurrency primarily through a lens of consumer protection and financial system stability.

Opposing this perspective was a small (but not insignificant) contingent of pro-crypto Democrats who saw crypto as an opportunity for financial innovation and inclusion—or perhaps more cynically, merely as a way to fund campaigns. Some Democrats expressed fear that excessive regulation would "stifle innovation" and cede technological leadership to other countries. Other democrats just wanted to appear "pro-business" and "pro-innovation" and embraced a form of techno-determinism declaring the "web3 is inevitable" and "crypto is here to stay", regardless of how harmful it was to society. Others were just plain confused and delegated to their staffers, who in-turn based their reccomendations on industry whitepapers due to a lack of time and expertise. And some were just bought off by the crypto industry, plain and simple.

This ideological rift prevented the party from developing a unified stance on crypto regulation. The competing internal pressures effectively paralyzed legislative action, creating regulatory paralysis. Party leadership, including Senate Majority Leader Chuck Schumer (D-NY) and Vice President Kamala Harris, struggled to navigate these competing interests. During the 2024 election campaign, Vice President Kamala Harris attempted to walk an impossible and incoherent fine line between the two factions, vowing to "encourage" crypto while also protecting consumers and investors.

On the crypto policy debate, I'm reminded of the quote "If one side wants to build a bridge over a canyon and the other side doesn’t, the wisest possible position isn’t to build half a bridge that stops in thin air." This incoherent middle-ground approach left a policy vacuum that allowed the cryptocurrency industry to shape the narrative and regulatory landscape, and that created the current mess we find ourselves in.

Don't Stifle Innovation

The stated reluctance among some Democrats to regulate technologies, often framed as a fear of "stifling innovation," can be viewed through several critical lenses. One perspective is that this stance serves as a convenient shield, allowing policymakers to abdicate the difficult responsibility of understanding and governing complex technical fields. Faced with the arcane intricacies of software and conflicting narratives about its potential, invoking the universally positive concept of "innovation" provides a politically palatable justification for inaction or minimal intervention, delaying potentially necessary consumer protection or financial stability measures. This approach avoids the hard work of developing nuanced regulations, instead opting for a hands-off posture that appears forward-thinking but may neglect underlying risks.

Compounding this potential abdication is a genuine lack of deep technical understanding among many policymakers. The crypto space is rife with jargon, hype, contradictory narratives, and abstract promises. Without a solid grounding in computer science, finance and database technology, distinguishing genuine technological breakthroughs from inefficient or redundant applications becomes challenging. This knowledge gap makes policymakers susceptible to persuasive industry narratives that emphasize transformative potential while downplaying limitations or negative externalities. Consequently, the fear of stifling the next big thing can outweigh concerns rooted in technical realities, such as the argument made by many software engineers that existing, simpler technologies can often achieve the same goals more efficiently and without the significant negative externalities or potential for illicit use associated with blockchain applications.

This is best illustrated by Rep. Ritchie Torres (D-NY) who argued, "The project of radically decentralizing the internet and finance strikes me as a profoundly progressive cause"—a statement that reveals both profound technical ignorance and political naivety. Torres, notably the second-largest recipient of hedge fund industry money in Congress, fundamentally misunderstands that both the internet and financial systems are already decentralized by design. The internet has operated as a distributed network since its inception, while our financial system includes 4,455 federally insured credit unions alongside thousands of community banks and a distributed regulatory framework split across fifty states and four federal regulators. His framing of this deregulatory agenda of rolling back consumer protections and enabling predatory gambling as "progressive" represents either a cynical misappropriation of progressive language or a complete failure to understand the systems he claims to want to transform, or merely sophistry.

This quote reveals an unfortunatly common phenomenon, that it's far easier to hand-wave and posture that "decentralization" (a term with many disparete meanings) or "tokenization" (a buzzword with no clear definition or meaning) solving some long-standing legacy financial problem than it is to refute the argument with a technical discussion. Brandolini's eponymous law states: “The amount of energy needed to refute bullshit is an order of magnitude bigger than to produce it.” And oh my, does the crypto industry exploit this assymetry to the fullest extent.

Furthermore, the policy discourse is significantly shaped by a powerful nexus between Ivy League institutions and the private sector. Universities like Duke, MIT and Stanford house influential research centers and professors who often become prominent voices in policy discussions, frequently advocating for a light regulatory touch to foster innovation. However, these institutions often receive substantial grants and funding from the very industries they are analyzing. This creates a potential conflict of interest, where academic research and advocacy might inadvertently serve to legitimize and provide reputation laundering for crypto ventures. This academic-private flywheel generates authoritative-sounding arguments favoring innovation, effectively marginalizing dissenting technical experts who argue that much of the claimed innovation is unsubstantiated or comes with unacceptable trade-offs.

Ultimately, the narrative pushed by this academic-industry complex, combined with corporate influence and a potential lack of technical depth among policymakers, creates a challenging environment for any critical perspectives to gain traction. Software engineers and other technologists pointing out that many blockchain use-cases are technically suboptimal solutions searching for a problem struggle to have their message cut through the noise. The arguments about efficiency, scalability, security, and negative externalities are often drowned out by the well-funded, academically-backed chorus chanting "innovation." This dynamic contributes to a policy environment where Democrats hesitate to implement robust regulations, caught between the fear of hindering progress (real or imagined) and the complex, interwoven pressures shaping the debate.

The reality is that cryptocurrency offered no genuine technological innovation. It merely created unregulated financial instruments that circumvented established regulatory frameworks, while facilitating speculative gambling on arbitrary price fluctuations of digital assets with no intrinsic value. Both of these functions fundamentally undermine the principles of a society governed by consistent and equitable rule of law. Consider that cryptocurrency is roughly the same age as the iPhone, yet while we can clearly point to how the iPhone transformed communication, productivity, and daily life for billions, crypto's societal contributions remain conspicuously absent after fifteen years of development.

This is the area that I have been most active in, and unfortunately I don't have a good answer to this problem. Other than software engineers need to be more democratically involved and academics need to be less corruptible. I'm not holding my breath for either of these things to happen.

Too Niche, Too Wonky

The reality is that crypto policy is extremely niche and the average American both doesn't even know it exists and doesn't care about it. In polling it ranks alongside salmon fishing subsidies in terms of issues the public cares about. Which makes messaging on this issue a near-impossible tasks, and barely worth the effort until there's some sort of scandal or crisis that dominates the news cycle. The average voter just doesn't have a reason to care, relative to everyday kitchen table issues.

The reality that abstract financial policy is too wonky, too niche, and too far removed from the daily lives of most Americans. The technical and legal complexity creates a significant knowledge asymmetry between people interested in this topic and the public, allowing a hegemonic bloc of neoliberal interests to dominate the discourse. This bloc—comprising technology firms, venture capitalists, and financial institutions—effectively monopolizes the expertise needed to craft regulation, while simultaneously funding think tanks and academic centers that produce policy papers aligned with their market-oriented worldview.

The resulting environment becomes captured by a classic case of elite-driven policymaking with a predisposition towards inaction and conflicts of interest. A small cadre of technocratic policymakers, themselves products of the revolving door between government and private industry, find themselves intellectually divided yet structurally constrained by career incentives that discourage regulatory boldness. Their personal career trajectories often lead to lucrative positions at law firms and financial institutions with vested interests in crypto markets, creating conflicts of interest that subtly shape regulatory approaches. This dynamic reinforces a hegemonic consensus that privileges market-based solutions and appeals to "innovation" over any kind of action, effectively neutralizing attempts at meaningful regulation while maintaining the appearance of democratic deliberation. This is not a new phenomon of course, but unfortunately it is a very common one on issues that are so far outside of the public consciousness.

One might think that the transformation of the Executive Branch into a blatant pay-to-play operation under Trump would break through the public, and could be a watershed moment for public awareness on crypto corruption. Yet this scandal has failed to galvanize meaningful opposition. Instead, we're witnessing a disturbing shift in American values, where many citizens have implicitly accepted Thucydides' brutal principle that "the strong do what they can and the weak suffer what they must." This cynical embrace of power over principle—the notion that if Trump can exploit the system, he's entitled to do so—represents a fundamental abandonment of the rule of law. Such thinking doesn't just enable corruption; it celebrates it as a form of strength. This profound ethical collapse makes regulatory reform nearly impossible, as it antithetical to the very foundation of a rules-based society. But that's where we're at as a country sadly.

Regulatory Sclerosis

The period spanning from 2020 to early 2025 witnessed a concerted push by prominent Democrats, notably Senator Elizabeth Warren, to establish stricter regulatory frameworks around the burgeoning cryptocurrency industry. Driven by concerns over illicit finance, including money laundering, terrorism financing, and rampant consumer fraud, these efforts sought to bring crypto tokens under the purview of existing financial regulations. While internal party consensus began showing fractures later in this period, key figures remained steadfast in advocating for measures aimed at mitigating the perceived risks inherent in the largely unregulated crypto space.

At the forefront of these legislative initiatives was the Digital Asset Anti-Money Laundering Act (DAAMLA). Championed vigorously by Senator Warren, this bill represented the most comprehensive attempt to impose traditional financial safeguards onto the digital asset ecosystem. First introduced in December 2022 and formally reintroduced with expanded, initially bipartisan, support in July 2023, DAAMLA aimed to close regulatory gaps exploited by illicit actors. Early co-sponsors included figures like Senators Roger Marshall (R-KS), Joe Manchin (D-WV), and Lindsey Graham (R-SC), signalling an initial cross-party interest in addressing crypto-related risks, although some Republican support later waned.

The DAAMLA proposal gained significant traction among Democrats throughout late 2023, building a broad coalition within the party. By December 2023, numerous influential Democratic senators, including several members of the crucial Senate Banking Committee like Raphael Warnock, Laphonza Butler, and Chris Van Hollen, had signed on as co-sponsors. The legislation's core provisions intended to extend Bank Secrecy Act obligations—including Know Your Customer requirements—to previously uncovered entities like wallet providers, miners, and validators. It also sought to mandate reporting for large offshore crypto transactions and directed the Treasury Department to establish robust compliance examination processes for crypto businesses.

Senator Warren consistently justified the need for DAAMLA by framing it as a critical national security measure. She argued that cryptocurrencies had become a preferred tool for rogue nations, drug cartels, ransomware gangs, and fraudsters, citing estimates that significant portions of North Korea's missile program were funded via crypto-related cybercrime and that illicit crypto transactions reached at least $20 billion in 2022 alone. This rationale resonated with some traditional financial institutions, garnering explicit support from groups like the Bank Policy Institute, which saw the bill as a step towards leveling the regulatory playing field.

Beyond proposing new legislation, influential Democrats also actively opposed measures perceived as overly friendly to the crypto industry or lacking sufficient safeguards. Senator Warren, alongside Senate Banking Chairman Sherrod Brown (D-OH), stood as a primary obstacle to the Senate considering the Financial Innovation and Technology for the 21st Century Act (FIT 21). Despite this Republican-led bill passing the House with considerable bipartisan support, including 71 Democrats, Warren criticized it for potentially weakening regulatory oversight. Similarly, she voiced strong opposition to stablecoin bills like the proposed GENIUS Act, arguing they risked consumer funds and national security unless they incorporated stringent anti-money laundering protections as demanded by the Treasury Department.

Despite the persistent efforts led by Senator Warren to impose tighter controls, the period also revealed evolving dynamics within the Democratic party regarding cryptocurrency. A notable instance occurred in May 2024 when Senate Majority Leader Chuck Schumer and ten other Democratic senators voted against the Biden administration's stance to overturn specific SEC guidance (SAB 121) on crypto accounting, signalling a potential softening or diversification of views among some Democrats. This divergence highlighted a growing internal debate, contrasting Warren's staunch regulatory approach with other positions emerging elsewhere within the party, setting the stage for continued policy clashes and inaction leading into 2025. And that's where we are today, despite the best intentions of the Warren faction of party, there's been very little progress on the legislative front.

Crypto Super PACs

The cryptocurrency industry, initially operating on the fringes of the financial system, has rapidly evolved into a significant political force. Its business models, often predicated on minimal regulatory oversight and a continuous stream of public investment, created a powerful incentive to engage directly with policymakers. As governments worldwide began considering stricter rules to address concerns around consumer protection, market stability, and illicit finance, the crypto sector recognized the existential threat regulation posed. Consequently, the industry began to strategically marshal its considerable financial resources, transitioning from a nascent tech sector into a sophisticated lobbying powerhouse determined to shape legislation and political outcomes in its favor.

This political mobilization manifested primarily through unprecedented levels of spending on lobbying and campaign finance. The industry deployed armies of lobbyists, many with deep connections forged through previous government service, to advocate directly with lawmakers and regulators. Furthermore, during critical election cycles, such as the 2024 midterms, crypto-aligned super PACs injected vast sums into closely contested races, exceeding $245 million, dwarfing the $27 million donated by Sam Bankman-Fried to a similar PAC in 2022. This deluge of money was strategically deployed to support candidates perceived as friendly to the industry's anti-regulatory stance and, crucially, to oppose those who favored stronger oversight, effectively functioning as large-scale influence buying.

A key tactic in the industry's influence campaign involved specifically targeting prominent critics and regulatory advocates within the Democratic party. Figures like Senator Elizabeth Warren and Senator Sherrod Brown, then-Chair of the Senate Banking Committee, became focal points for intense opposition funding. These were not random attacks but calculated efforts to neutralize powerful voices pushing for regulation. The significant spending against Senator Brown, utilizing sophisticated and relentless campaign tactics, was a major factor contributing to his narrow defeat in the 2024 election.

The political consequences of this targeted spending extended beyond individual races, significantly impacting the overall balance of power and the legislative agenda. The loss of key figures like Senator Brown, attributed in part to the crypto industry's intervention, played a role in the shift of Senate control towards the Republican party. This alteration in the political landscape severely hampered the prospects for enacting meaningful crypto regulations favored by Democrats and consumer advocates. Moreover, it weakened the legislative branch's ability to serve as a check on run-away executive power which we now have to deal with in the current administration.

The cryptocurrency industry's aggressive foray into political spending raises existential questions about the health of democratic processes. When a single industry can pour hundreds of millions of dollars into elections to unseat critics and elect allies, it risks distorting policy outcomes away from the public interest and towards narrow corporate objectives. The rot runs deep in America, and crypto regulatory capture is just the latest symptom of the grotesque corruption of our political system by the Citizens United ruling.

State-level Legislation

While the Biden administration was slow to act at the Federal level, a significant counter-trend emerged within individual states. Entrepreneurs in the crypto industry very easily captured state legislatures, and under the very simple guise of bringing business and jobs to their states, this created a scenario where the crypto industry, facing ambiguity or potential hostility from Washington D.C., found welcoming environments and operational certainty through state-level actions, effectively allowing it to establish a legitimate foothold within the United States.

Among local city leaders, New York City Mayor Eric Adams emerged as one of the country's most outspoken Democratic crypto backers, even converting his salary into Bitcoin and Ether to demonstrate his commitment. However, Adams, known for his proximity to the crypto world, now faces serious fraud allegations; he has been charged in a five-count federal indictment with multiple fraud-related offenses. Prosecutors allege that he orchestrated a scheme to accept illegal campaign contributions from foreign nationals through "straw donors" who falsely claimed to be donating their own money. Additionally, he is charged with wire fraud for allegedly misappropriating funds from New York City's matching funds program by leveraging these illegal donations to obtain public matching funds.

Wyoming stands out as the preeminent example of this state-led legitimization effort. Dubbed the "Delaware of Digital Asset Law," Wyoming enacted a comprehensive suite of over 30 bills specifically designed to support the industry. Its most groundbreaking move was the creation of Special Purpose Depository Institution charters, allowing crypto companies like Kraken and Avanti to become state-chartered banks. This provided unprecedented legitimacy and, crucially, established a regulated pathway connecting crypto tokens to the traditional U.S. dollar payments system via the Federal Reserve. Wyoming further bolstered the industry by providing specific legal protections for crypto ownership, including shielding assets held in Wyoming LLCs from certain creditors.

Following Wyoming's pioneering efforts, a wave of other states implemented their own crypto-friendly policies, solidifying the industry's presence across the country. Florida exempted crypto businesses from certain licensing requirements, created a regulatory sandbox for innovation, and even initiated a pilot program for paying state fees with cryptocurrency. Texas leveraged its energy resources and deregulated grid to become a hub for crypto mining, offering significant tax incentives and authorizing state-chartered banks to offer crypto custody services. Other states like Nevada, Tennessee, South Dakota, and Alaska also adopted various measures, from recognizing blockchain records legally to maintaining low tax burdens, collectively signaling a broad state-level acceptance and encouragement of the crypto sector.

The Challenges of the SEC

The intellectual legal debate surrounding whether most crypto assets qualify as securities under existing U.S. law delves into fundamental and ultimately deeply philosophical questions about value and legal rights in financial markets. Traditionally, securities like stocks or bonds represent a claim on an underlying entity's assets, profits, or future cash flows, imparting specific legal rights to the holder. Most crypto assets, however, lack such direct claims; their value often derives not from underlying assets or contractual entitlements but from market sentiment, technological promise, or speculative momentum—what might be termed "sentiment and vibes." This creates a novel situation: assets potentially commanding significant market capitalizations without conferring tangible ownership or creditor rights, traded primarily on collective belief rather than intrinsic economic function. Applying securities laws designed for instruments with clear underlying claims to these fundamentally different digital tokens presents a genuine legal and conceptual challenge, forcing regulators and courts to grapple with absurd and/or worthless assets that may not cleanly fit in any category or really have any reason to exist.

This inherent ambiguity fuels a legitimate debate about the appropriate regulatory framework and the very purpose of financial regulation. Bringing most crypto assets under the SEC's remit, while potentially offering investor protection, raises complex questions. Crypto assets function as speculative instruments lacking connection to productive capital formation or tangible economic value creation, then regulating them under securities law risks transforming the SEC, in this context, into something akin to a gambling regulator rather than a facilitator of efficient capital markets. This predicament highlights a profound, unresolved tension: should financial regulation solely focus on instruments funding economic activity, or must it now encompass purely speculative, digitally native assets traded on belief alone? Congress arguably should have stepped in to deliberate this complex issue, which touches upon the fundamental role of markets and finance in society—a nuanced debate involving intricate legal and economic philosophy that the public may struggle to grasp and policymakers have largely avoided confronting head-on. But Congress really isn't in the legislating business these days, so it fell on the SEC to muddle through the problem as best as they could and try and minimize public harm.

On top of this complicated debate we never had, there was the claim that the SEC under Chair Gensler employed "regulation by enforcement" against the crypto industry often misrepresents standard regulatory procedure. Enforcement is a fundamental tool for agencies like the SEC, used to ensure compliance with existing laws—in this case, primarily the Securities Acts of 1933 and 1934. The SEC's actions largely involved applying the long-established Howey test to determine if crypto tokens qualified as investment contracts (securities). This application of existing legal frameworks and judicial precedent to novel technologies is a core function of regulatory bodies, not an invention of new rules post hoc through punitive measures. The SEC consistently articulated its view that most crypto tokens fit within the existing definition of a security, basing enforcement actions on violations of these established laws.

Much of the crypto industry's objection stemmed from a fundamental disagreement with the SEC's application of the Howey test to their products, rather than a genuine lack of legal standards. Industry participants often argued for unique treatment or bespoke rules, viewing the application of traditional securities laws as ill-suited. When the SEC proceeded with enforcement based on its interpretation of existing law, it was labeled "regulation by enforcement" by those facing action or seeking a more lenient framework. However, this overlooks that regulatory agencies aren't obligated to create specific new rules for every new technology before enforcing existing statutes, especially when they believe current laws apply. Furthermore, the SEC did provide guidance through various communications and the enforcement actions themselves, which clarified the types of conduct considered non-compliant, albeit in a manner the industry found unfavorable.

Ultimately, the "regulation by enforcement" narrative functions more as a rhetorical critique of the outcomes of the SEC's actions than a substantive legal challenge to its methods. It reflects the industry's frustration with being subjected to long-standing investor protection laws and the Howey framework, rather than demonstrating that the SEC was arbitrarily creating new rules through enforcement actions alone. Characterizing the application of established legal principles as an inherently improper process obscures the core issue: a clash between the industry's desire for a different regulatory approach and the SEC's mandate to apply existing securities laws as it interprets them. Regulation by enforcement was really just "enforcement" of long-standing laws that the industry just didn't want to comply with.

However one decision by the Gensler SEC comes across as particularly wrong-headed that of the decision to declare Coinbase's registration effective in April 2021, enabling its direct listing. While the SEC's approval focused strictly on whether Coinbase met the necessary disclosure requirements for investors, not on endorsing its business practices or confirming compliance with all securities laws, this distinction proved problematic later. The approval, handled by the SEC's disclosure review division, essentially confirmed that Coinbase provided sufficient information for the public listing process, following standard procedure.

The core of the controversy stems from the inherent conflicts of interest embedded in Coinbase's vertically integrated structure, which the SEC itself later challenged. In its June 2023 lawsuit, the SEC alleged that Coinbase had been operating illegally since at least 2019—well before its public listing—as an unregistered securities exchange, broker, and clearing agency simultaneously. This combination of functions within one entity is typically separated in traditional financial markets precisely to mitigate conflicts between intermediaries and their customers. The SEC argued that by acting as the marketplace, the agent facilitating trades, and the custodian holding assets and settling transactions, Coinbase created significant, unavoidable conflicts of interest detrimental to investors.

This situation presents a paradox: the SEC, whose mandate includes ensuring market integrity and investor protection (partly by managing conflicts of interest), allowed a company to go public despite its core operations seemingly embodying the very conflicts the regulatory framework seeks to prevent. The paradox is heightened by evidence suggesting the SEC had warned Coinbase pre-listing about potential enforcement actions regarding its asset listings and operational structure. While much of the review predated Chair Gary Gensler's tenure, the fact remains that the agency greenlit public market access for a company whose business model it later sued as fundamentally non-compliant with securities laws designed to separate functions and avoid such conflicts. We don't know the internal machinations of what went on, but it's clear this decision was a mistake and further allowed the floodgates of capital to pour into the crypto industry on top of a predatory non-compliant business model which led us to the current mess.

However compounding these choices and challenges, the Gensler SEC found itself in an exceedingly difficult position regarding the crypto market. Despite Gensler's stalwart commitment to applying securities laws, the agency faced a veritable "forest fire" of tens of thousands of individual tokens and platforms operating in clear violation of securities laws, stretching its already limited resources impossibly thin. Compared to the vast scale of the traditional US capital markets that constitute the SEC's primary and existential mandate, the crypto market, while growing, remained relatively small (relative to the size of normal capital markets). This created a resource allocation dilemma. Gensler was essentially tasked with containing this rapidly spreading digital wildfire with the equivalent of a garden hose, lacking the necessary budget and personnel.

Critically, neither the Biden administration nor Congress provided the substantial reinforcements—either through significantly increased funding for the SEC or comprehensive legislative action—needed to adequately address the scale and novelty of the crypto problem, leaving the agency to manage an overwhelming situation with insufficient tools or resources. Credit should go to the stalwart staffers who tried their best despite the insurmountable problem they were tasked with. But it's clear the agency was never given the resources needed to fully tackle this problem at scale.

Current Administration

The current administration, is not surprisingly rife with conflicts of interest and corruption. The SEC allegedly dropped or paused multiple enforcement actions against crypto companies founded by or linked to President Trump's donors and business partners. Specifically:

  • Binance: Pausing the SEC case after the Trump family reportedly held talks to acquire a financial stake in the company.
  • Coinbase: Dismissing the SEC case shortly before its CEO attended a White House digital assets summit.
  • Justin Sun (Tron): Pausing the SEC case against Sun, who invested $75 million in a Trump family-affiliated crypto project (World Liberty Financial) from which the family could potentially earn substantial revenue.
  • Ripple Labs: Reportedly dropping the SEC case less than two weeks after its CEO attended the White House crypto summit and after the company donated $5 million to Trump's inaugural committee.
  • Immutable and Uniswap: Dropping investigations into these firms, which are connected to SEC Chair Nominee Paul Atkins' investments via Anchorage Digital.

The SEC's Division of Corporate Finance issued a Staff Statement asserting most meme coins are not securities. This interpretation could shield President Trump's and First Lady Melania Trump's own meme coins (TRUMP and MELANIA) from regulatory scrutiny and federal securities laws. The subsequent closure of an investigation into the "Hawk Tuah" meme coin reinforces this concern.

David Sacks, a Trump apointee and venture capitalist, was appointed as the Trump administration’s special advisor for AI and cryptocurrency-informally known as the “crypto czar.” Craft Ventures holds stakes in other crypto-related companies, such as BitGo, Chia Network, and Dapper Labs while Craft Ventures retains exposure to the digital asset sector which David Sacks oversees.

The Trump family's venture, World Liberty Financial, is launching a stablecoin on a blockchain created by Binance, further intertwining the family's business interests with a company that has received potentially favorable regulatory treatment (paused SEC case).

In addition to this, Paul Atkins, Trump's nominee for SEC Chair, holds significant crypto-related investments (up to $6 million) in firms like Securitize, Anchorage Digital, and Off the Chain Capital. These firms have connections (as investors or through supported assets) to companies like Coinbase, Ripple, Immutable, Uniswap, and Binance, which have recently benefited from favorable SEC decisions (dropped/paused cases). This raises concerns about potential conflicts of interest influencing SEC actions, even with his commitment to divest if confirmed.

In Congress there are two pieces of theoretical legislation that are the industry wants to push through Congress, even though there is essentially no interest from the public for them to pass. These fall into two categories right now but might emerge as one bill in the future.

  • Stablecoin Bill: These proposed stablecoin bills (like the GENIUS and STABLE Acts) risk destabilizing the US financial system by creating a weak regulatory framework tailored to industry demands. They would allow a broad range of entities, including potentially under-regulated non-banks, to issue systemically important payment instruments, creating opportunities for regulatory arbitrage between inconsistent state and federal oversight. Mandating reserves sounds prudent, but the push to allow interest payments could transform stablecoins into risky, uninsured deposit-like products prone to runs (like we saw with money market funds in 2008), while oversight mechanisms might prove insufficient to guarantee true 1:1 backing, prioritizing industry profits and innovation theatre over genuine consumer protection and financial stability.

  • Market Structure Bill: The proposed market structure legislation represents an attempt by the crypto industry to weaken established investor protections and undermine regulatory authority for its own benefit. By pushing to rigidly define jurisdiction and create pathways to classify many digital assets as commodities under the CFTC, the bill seeks to sideline the SEC and subject fewer products to robust securities laws, potentially leaving investors exposed. The demand for "practical" registration processes and Congressionally-mandated rules risks locking in lenient standards, hindering regulators' ability to adapt to evolving risks and ultimately legitimizing a largely speculative market while sacrificing crucial safeguards under the guise of promoting innovation. This legislation dangerously weakens existing securities regulation by potentially allowing firms to wrap traditional equity products onto the blockchain, relabel them as tokens to exploit regulatory loopholes, and thus subject them to far less stringent oversight, effectively incentivizing a race to the bottom that sacrifices vital investor protections like disclosures and controls.

Needless to say if any of these bills are allowed to pass, this would be incredibly harmful to the American public. We live in unprecedented times. Never before in the history of the United States has a president been so deeply entangled in business interests while in office, and the conflicts of interest and corruption this creates are unprecedented.

So is there any hope?

At least in the current configuration of American politics, with a feckless Republican congress hell-bent on authoritarianism, where Citizens United is still the law of the land, it's hard to see what can be done so long as the current Democratic party is the only vehicle for change.

The current leadership is too divided, too focused on botique social issues, too out of touch with voters, and too easily corruptible by commercial interests. The next several years will uncork a geyser of corruption from the Trump crime family and their friends in the crypto industry which will make the worst excesses of the Gilded Age seem tame. They'll be hundreds if not thousands of new scandals, and crypto fraud will become an everyday fixture of American life. Crypto fraudsters will make billions fleecing the public, relocate themselves and their ill-gotten gains to Dubai to shield themelves from the consequences of democratic backsliding, all while continuing to funnel money into crypto super PACs to keep the gravy train flowing while the world burns.

Elections have consequences. The American public voted to touch the stove of authoritarianism coupled with unchecked financial fraud, and now they're going to get burned. And sadly the time to stop this was four years ago, it's too late now. But on the backside of several years of this orgy of greed and corruption, there might be an opportunity for a new generation of Democrats to step up. I don't know what that party will look like, or if the republic will even survive, but hopefully they will take the crypto threat seriously and not make the same mistakes again.