As Democrats spent the lead-up to the 2022 midterm elections fretting and hand-wringing about a potential red wave, they had one silver lining: the emergence of a new superdonor. Sam Bankman-Fried, the wunderkind 30-year-old founder and CEO of FTX, the upstart cryptocurrency exchange, was splashing money around everywhere. He was young. He was rich. He seemed smart. And he looked like the successor to George Soros, the 92-year-old billionaire who had given Democrats more than $100 million during the midterm cycle. Bankman-Fried gave a more modest $40 million—including $6 million to Nancy Pelosi’s House Majority PAC—but he suggested it was merely a grace note. During the 2024 contest, which will decide the presidency, he planned to spend “north of $100 million,” he said, even flirting with $1 billion in total.
The 2022 midterms could have been the moment that Bankman-Fried emerged as the Democrats’ latest kingmaker: The “effective altruism” enthusiast had friends throughout the party and was eager to throw his weight around—presumably including using his newfound influence to protect the crypto market from forces within the party—like Massachusetts Senator Elizabeth Warren—who want to regulate it. The party vastly outperformed expectations, holding onto a slim majority in the Senate and, it seems, narrowly losing the House. It’s easy to imagine a world in which Sam Bankman-Fried treated this moment as a coronation, arriving as a new political power player who would use his vast wealth and influence for decades.
Instead, as Democrats piled up victories in tight congressional elections, Bankman-Fried was holed up in the Bahamas as his cryptocurrency exchange collapsed amid a liquidity crisis and allegations that he had misused funds. FTX declared bankruptcy on Friday; Bankman-Fried is currently under investigation by the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Manhattan U.S. Attorney’s Office. Those investigations appear to focus on reports that Bankman-Fried had lent billions—his customers’ money—to a linked firm called Alameda Partners to fund risky trades.
“What this will boil down to is, were there deliberate lies to convince depositors or investors to part with their assets?” former Manhattan federal prosecutor Samson Enzer told The Wall Street Journal. “Were there statements made that were false, and the maker of those statements knew they were false, and made [them] with the intent to deceive the investor?” Bankman-Fried, it should be noted, tweeted “FTX is fine” four days before the company declared bankruptcy.
Democratic hopes in Bankman-Fried had already started evaporating before the elections. Although he spent big in the primaries, the spigot dried up down the stretch, possibly due to FTX’s worsening situation. By mid-October, he had backtracked on his “$1 billion” pledge, calling it “dumb,” and paused campaign spending altogether. “At some point, when you’ve given your message to voters, there’s just not a whole lot more you can do,” Bankman-Fried told Politico at the time. “You can spend more time on it, and more messaging, more money, more anything else, [but] you’re not accomplishing anything more.”
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.