Move Fast and Break Everything: Crypto and the Democrats

In November 2022, the giant cryptocurrency exchange FTX filed for bankruptcy. The shocking collapse triggered runs on other crypto firms, forcing several to close, along with two major banks, while crestfallen venture capital and sovereign wealth funds suffered millions in forced write-downs. Crypto looked on the brink of financial nuclear winter.

Yet less than three years later, crypto staged a triumphant Second Coming. On July 18, 2025, President Trump signed into law the GENIUS Act—short for Guiding and Establishing National Innovation for U.S. Stablecoins. Industry leaders rattled off a litany of benefits they claimed would flow from the legislation, from cheaper payments to a stronger worldwide demand for dollars.

The industry’s phoenix-like resurrection is well documented on the Republican side. Key crypto billionaires aligned with Trump early in the 2024 campaign, transforming him from a skeptic into a champion. The President and his family invested heavily with some and profited giddily from regulatory momentum that helped vault him 118 spots on the Forbes 400 list of richest Americans. The President’s strong support and the firehose of political money that industry stalwarts showered on Republican legislators leaves little mystery about how crypto won there.

But crypto’s conquest of the Republicans is only part of its ascent. Less discussed is how crypto is advancing among Democrats. This is the topic of our new INET working paper.

Realignment Among the Democrats

In 2024, when crypto-friendly legislation came to votes in the House, most Democrats followed the Biden administration’s lead in rejecting it. The President and his key regulators—especially Securities and Exchange Commission Chair Gary Gensler—remained highly skeptical. Top Federal Reserve officials, like nearly all leaders of major banks at the time, shared their reserve.

But in 2025, something changed. Fully 102 House Democrats voted for the GENIUS Act, and 78—more than double the number expected—joined Republicans to pass a companion Clarity Act pushed by crypto advocates to define key regulatory issues beyond stablecoins. The latter did not pass the Senate; it remains a topic of intense debate that no longer breaks down along strict partisan lines.

We examined voting by House Democrats for both the GENIUS Act and the Clarity Act. Our working paper’s “Statistical Appendix” sets out our model in full; here we explain our findings in non-technical terms. Surprisingly, what did not explain the Democratic votes proved as revealing as what did. Trump-Harris vote differences in districts did not matter. Neither did lawmakers’ margins of victory, their ages, or state-specific factors. Instead, crypto support correlates closely with wealth, ideology, and financial contributions.

For the GENIUS Act, legislators from districts with more high-income households were more likely to vote yes: for every 1% increase in households earning over $200,000, the odds of a yes vote rose by 7.4%.

More conservative Democrats — based on several standard measures of Congressional ideology — were also more likely to vote yes, with one or two notable outliers among progressives.

The total amount of money legislators received from crypto interests helped predict their votes. For every $1,000 increase in total contributions, the odds of voting for the GENIUS bill increase by 0.2%. Since contributions often amounted to many thousands (sometimes even hundreds of thousands) this effect cannot be neglected.

These results echo our previous study of Congress and the weakening of Dodd-Frank financial reforms. There, each additional $100,000 in contributions raised the odds a legislator would vote to weaken financial regulation by 13.9%. Some members received substantially more—and voted accordingly.

The Larger Context

Dodd-Frank’s erosion really mattered. Under Trump and Jerome Powell, the Federal Reserve chipped away at tighter banking regulations. When Biden’s team attempted a reset around Basel III capital requirements, the effort petered out as Trump reemerged as a champion of further deregulation. By January 2025, top regulators at the Bank of England and the Bank for International Settlements were openly voicing fears that the United States could set off a race to the bottom in global financial regulation. A strong signal came from reports that UBS, the giant Swiss bank, was seriously considering moving to the U.S. to escape stricter oversight.

This is the context in which the struggle between crypto and mega banks is best appreciated, because adding crypto creates distinctive new dangers.

Dubious Claims About Technology

Setting aside bitcoin and meme coins—essentially gambling, as recent roller coaster swings illustrate—the real policy battle centers on stablecoins. Proponents claim these represent genuine technological innovation, a “better mousetrap” for payments.

We are skeptical.

Blockchain technology remains relatively slow and cannot handle high transaction volumes. It is also clunky, often expensively so. Many stablecoins are designed to function like walled gardens, trapping users in ecosystems that make exits costly. Switching between stablecoins involves fees and charges. And stablecoins are not federally insured, so runs are likely to be lightning fast.

Some analysts have suggested on theoretical grounds that blockchain’s underlying security mechanism has poor scaling characteristics compared to conventional rule of law. Since the rewards for a successful attack swell with the network’s value, so would the resources needed to deter attacks. As more users enlist, more cash and circuits must be burned to enforce trust. With power costs skyrocketing as Large Language Models proliferate, such misgivings can only increase.

At a more fundamental level, if blockchain technology could be made as swift and efficient as stablecoin advocates envision, central banks could simply implement one themselves and provide the service directly to citizens at very low cost. Such a universal system would allow the resulting economies of scale to benefit the public rather than private oligopolies and facilitate innovation in the rest of the economy by reducing costs of operations for everyone else.

Right now, for example, the Brazilian central bank runs a hugely successful instant payment system that makes transfers at no cost to individuals and at much lower rates than private credit cards for businesses. It does not run on blockchain, but on a database owned and managed by the central bank, which also superintends its cybersecurity. According to the International Monetary Fund, encrypted payments in the system settle in seconds, compared to two days for debit cards and 28 days for credit cards.

The lesson for regulators and the public is to beware hype about “21^st century systems”: all payment systems transmit at roughly the speed of light even if the amount of information flowing through them varies. Their economically important differences lie in information checks, security protocols, regulatory supervision and, crucially, how many intermediaries take toll along the way. Plus, of course, who gets to hold the means of payment and for how long.

Tellingly, all the interest groups in the struggle over the GENIUS and Clarity Acts strongly oppose central bank digital currencies. Neither traditional banks nor stablecoin issuers want competition from government-provided digital payment systems.

This alignment between the rivals speaks volumes, and it is striking how each side’s arguments in favor of its payment scheme evolve over time. Keeping payments data out of the hands of government was long a universal rallying cry, but it is now so obviously specious it is heard less and less. Advocates just talk past how simple it is for data brokers to buy and resell people’s “private” data. Indeed lobbying battles are now erupting over whether banks can be forced to share client data with crypto firms.

The Remittance Question

Our study yielded one unexpected result: districts with higher percentages of Hispanic constituents were more likely to see their legislators vote for pro-crypto legislation. For every 1% increase in a district’s percent Hispanic, the odds that its representative voted for the GENIUS Act increase by 3.1%. Since percentages vary substantially, the effect is sometimes sizeable. Initially this result puzzled us, but a review of claims by advocates in and out of Congress reveals heavy emphasis on how crypto might lower the costs of international money transfers. These matter greatly for immigrant communities sending money to families abroad; by far the largest flows involve Mexico (Congressional Research Service, 2023).

Whether these cost savings materialize in practice is hard to say. The collision between traditional financial systems and crypto is creating complex, evolving market dynamics. Traditional bank remittance fees remain high, though fees and charges for getting in and out of blockchains are sometimes sizeable. Banks—which once complained bitterly about “know your customer” regulations—now sometimes quietly point to them as an advantage for customers.

The underlying problem is that major banks have long since abandoned poorer customers. A 2023 FDIC study found that almost a fifth of the U.S. population has little or no access to banking services. The situation is reminiscent of the well-known food deserts in many large cities: a recent Federal Reserve Bank of Atlanta study showed that highly consolidated grocery chains often consider doing business in low-income areas not worth the effort, seeing the potential rewards as too small.

Independent studies of the costs of remittances suggest that competition in sending money abroad has failed, just like it has in credit cards. A report by the Bank for International Settlements and the World Bank Group pointed out the “thin profit margins for basic account providers [of banking services]. Some respondents noted that there is little economic incentive for private sector parties to provide these accounts.”

This market failure has given crypto firms an opening they shouldn’t have. The solution isn’t necessarily crypto deregulation—it’s ensuring financial institutions serve all communities adequately with controls on crypto that are equivalent to best practice in banking.

The Dark Side

The remittance question is inseparable from crypto’s role in criminal activity. For all the glowing praise of blockchain transparency, many crucial parts of crypto are anything but transparent. It is easy to disguise the ownership of crypto wallets, for example. Ransomware attackers almost always demand payment in crypto, typically Bitcoin. Corporate executives have described watching ransom payments vanish into the blockchain, bouncing between wallets and exchanges before ending up in casinos and splitting into countless untraceable fragments.

One of the clearest depictions of the scale of the problem is Jeff White’s Rinsed. Crypto ATMs are overwhelmingly concentrated in poor neighborhoods, facilitating various forms of money laundering. Most allow users to buy crypto, but not usually to get out of it. Criminals recruit individuals to conduct transactions by providing small amounts of money on bank cards—a common laundering technique that operates both domestically and internationally.

The philanthropic activities abroad touted by some stablecoin proponents deserve scrutiny through this lens. The blockchain isn’t just a technology—it’s an ecosystem of intermediaries including crypto wallets, brokers, and dealers, many operating in highly concentrated networks that allow operators to move money in and out of customers’ pockets with minimal oversight.

Big Money and How Lawmaking Really Works

The GENIUS Act appeared to prohibit interest payments on stablecoins. The provision was a major factor persuading traditional banking groups not to move strongly against the legislation. That prohibition has already broken down. One major stablecoin issuer is already advertising 10 percent returns for “loaning out” stablecoins through affiliated but technically separate entities. All sides are appealing to regulators and to Congress to do something.

The new legislation in theory requires stablecoin issuers to function as “narrow banks” – they are allowed to hold only very short term, (hopefully) highly liquid assets that can be sold on demand against any run on their stablecoins. The supervisory structure to enforce this is complicated and is in fact a work in progress. It relies on public attestations by firm executives and audits by accounting firms as early screening devices as well as supervision by different regulators depending on the size of institutions. But with regulators under budgetary and political pressure, how this will work in practice remains to be seen. Reminding many observers of the bad old days of pre-Civil War wildcat banking, the system appears highly vulnerable. The recent downgrade of Tether by S&P Global Ratings is a fire bell ringing in the night.

The situation is paradigmatic for the problems of a money-driven political system. When big money flows freely, crucial details get worked out long after a law has passed, in heavily technical discussions far away from public consideration, under pressure to conserve regulators’ time and resources, including some who are transiting from one revolving door to another.

Cyber Storm on the Horizon

There is more, alas. Both finance and crypto now face challenging new problems: above all, cybersecurity.

Here is where the regulatory race to the bottom meets galloping technology. The new administration drastically curtailed many important regulatory bodies as soon as it came to power, by cutting their budgets or simply sweeping them away. It dismissed the Justice Department’s National Currency Enforcement Team. It eliminated the Corporate Transparency Act that Treasury Secretary Janet Yellen had championed to control shell companies and improve financial transparency and neutered the Consumer Financial Protection Agency. Under Trump, the SEC has also pursued a unique, hands off policy toward crypto. These aren’t random policy adjustments – they represent a systematic dismantling of the regulatory infrastructure vital to preventing financial crime, just as technological changes pose dramatic new types of threats.

Alarmingly, the latest statement of the new administration’s National Security strategy does not even mention cybersecurity as a priority.

The omission is consequential. Under Biden, the Cybersecurity and Infrastructure Security Agency (CISA) struggled to convince companies to take cybersecurity seriously. Big budget cuts and the government shutdown have left it reeling under a new acting director who failed a polygraph test. Even at its old strength, the task was daunting: Competing firms are very reluctant to acknowledge failures, as the chilling example of Solar Winds illustrates. Companies that do tackle security risks can find themselves losing business to more feckless competitors, as has shown vividly in discussions of insurers who underpriced risks before recent California wildfires.

Private insurance markets cannot solve such problems because, as Daniel Schwarcz and Josephine Wolff have documented, insurers cannot adequately price cyber risk based on actual security incidents and measures taken—in practice they simply charge by firm size or even sector.

The only effective approach is mandatory standards—telling companies a minimum set of safeguards they must put in place. Without such requirements, vulnerabilities will only worsen.

The advent of quantum computing poses this challenge at a wholly new level. At the moment quantum hackers have cracked only very elementary encryption systems. Bitcoin and other systems use much stronger encryption, but it is plain that the combination of artificial intelligence, quantum computing, and autonomous AI agents is creating giant new risks at precisely the moment government regulators appear to be retrenching dramatically.Some months ago, Sam Altman of Open AI warned that the security systems many financial houses rely upon were now easily penetrated by hackers (Associated Press, 2025). A Federal Reserve governor allowed that this was a question that the Fed could perhaps study in collaboration with the tech giants. Since then, however, misgivings about federal government’s interest in cybersecurity have only grown. As one headline summarized the situation at the end of the year, “Fears Mount That US Federal Cybersecurity Is Stagnating—or Worse.”

Conclusion: Two Giant Systems Colliding

The US is now in the midst of a collision between two giant financial systems—traditional banking and crypto—with neither adequately regulated to serve the public interest and both lobbying for still more deregulation. Political money sloshes everywhere in the system, shaping outcomes just as it weakened Dodd-Frank and enabled crypto’s political resurrection after FTX.

The crypto debate is not really about technology or innovation – it’s about power, money, and whether democratic institutions can assert the public interest over private profits.

The situation might be summarized thus: Current crypto systems combine low cost and low security. They may evolve into something more useful, but right now, as a group and, often, individually, they present serious risks that money-driven politics is systematically obscuring – as for example in the emerging crypto-derivatives market. Meanwhile, the regulatory infrastructure needed to protect the public –from ransomware, money laundering, cyberattacks, and financial instability—is neglected or being actively dismantled, as federal enforcement pulls back.

Our research reveals a final significant trend, which we have space here only to mention, not discuss in full. Not just the Republicans, but the Democratic Party is now awash in crypto money. Industry donations run very high indeed to the National Committee and congressional Democratic Leaders, such as Senate Minority Leader Charles Schumer, House Minority Leader Hakeem Jeffries, or the House Minority Whip, Katherine Clark, and some individual legislators. Depending on the election cycle, the sums sometimes run in the millions, not tens or even hundreds of thousands. Our check of the Internal Revenue Service’s roster of 527 funds, which are not counted in the Federal Election Commission tabulations, also reveals crypto cash flowing abundantly to many state Democratic party organizations. These are not reported to the Federal Election Commission, but to the IRS, where they are ignored by the press. It is clear that these massive flows will be a silent backdrop to the debates now raging in the Party over its positions in the 2026 Congressional elections and beyond.