Why is crypto getting so partisan?

Feb 21, 2022

Last week I was in Denver. Erik Voorhees and the amazing folks of ShapeShift DAO hosted a fundraising dinner for Coin Center taking advantage of the fact everyone was in town for ETHDenver. We had an amazing time and I couldn’t be more grateful for the love and support we were given.

One question I got asked several times was whether crypto is becoming as partisan an issue as it seems to folks outside of DC. Many of the folks coming to ETHDenver are the furthest thing from right-wingers, and so the partisan turn in crypto that they perceive rightly baffles them. Here’s how I explained it.

For over a decade, crypto managed to be a non-partisan or bi-partisan issue. That means that we had champions and detractors on both sides of the aisle. One of our earliest supporters in Congress was Democratic congressman Jared Polis (now governor of Colorado) who helped found the Blockchain Caucus with Mick Mulvaney, a Republican who went on to serve as Donald Trump’s chief of staff. One thing they could agree on was their strong support of crypto.

It was great meeting Vitalik the founder of Ethereum. We had a great conversation and we look forward to working together to make Colorado the first digital state. pic.twitter.com/ZK3fSpxdtM

— Governor Jared Polis (@GovofCO) February 19, 2022

On the other side you’ve had Democrats like Brad Sherman, who’s always been an anti-crypto reactionary, and folks like Republican Senator Chuck Grassley, who’s been skeptical since Mt. Got days because of crypto’s misuse by illicit actors.

And then you had the vast, vast bulk of folks in Congress who didn’t know much about crypto and had no strong view either way.

As a good representative body should, the views in Congress on crypto nicely tracked public opinion. Check out this Morning Consult poll from December headlined “Crypto Is Getting Increasingly Political in Washington. The Rest of the Country Isn’t as Polarized.” It found that “an identical share of Republicans and Democrats said that there are ‘too many’ regulations on cryptocurrency” and that “notably, 45 percent of Democrats and 58 percent of Republicans didn’t know or had no opinion on the amount of cryptocurrency regulation.”

So what’s changing?

While we still have champions and detractors on both sides, along with a majority of members of Congress without a strong opinion, I think what’s changing is that the most vocal champions and detractors are sorting themselves along party lines. What I mean is that the most vocal detractors are generally all Democrats, while the most staunch champions tend to be Republicans. That doesn’t mean the partisan divide is any bigger than it’s ever been, but it will certainly be perceived this way.

Unfortunately what happens once this perception starts taking hold is that the majority of uncommitted members with low-information begin to take their cues from the vocal leaders on the issue from their party. Think of it this way: Imagine a Democratic Senator who hasn’t staked out a position on crypto because it’s never been a priority for their constituents and they’re not on any relevant committee, but they’re increasingly getting questions about it. They’ll look around and think, “Well, Elizabeth and Sherrod (who I trust and agree with on most things) think this stuff is pretty bad, and Ted (who I really don’t like) is all-in for it. OK, I guess I know what side I’m on.” Same goes for the other side (“I trust Cynthia, and I disagree on everything with Elizabeth”).

It’s hard to blame members for using the common heuristic of seeing where the rest of their tribe is on matters of low saliency for them. And even if they don’t agree with the pro- or anti-crypto position their party is coalescing around, if it’s not a very salient issue for them, their incentive will be to back those in their coalition regardless to ensure that they’ll be back on the issues that matter to them. This is the same coalitional instinct that drives uniformly partisan views on such disparate issues as abortion, gun laws, climate, and pandemic response. There’s no reason why people who agree on one of those topics should necessarily share uniform views on the rest, and yet they’re the most reliably partisan issues in Congress.

Abortion is a great case on point. Here’s Nate Cohn writing in the New York Times in December:

Abortion is one of the most polarizing issues in Washington. Congressional Democrats and Republicans all but unanimously back their party’s view on abortion, and many highly engaged activists feel the same way.

But the public’s view of abortion is far more complicated.

Despite decades of partisan fighting, Americans are not as neatly divided on abortion as politicians and activists. There are Republicans who support abortion rights, Democrats who oppose abortion and a surprisingly large group of voters who appear to have muddled or conflicted views. Overall, 26 percent of voters hold a different view on abortion than the presidential candidate they supported in 2020, according to data from an AP VoteCast election survey of more than 100,000 voters.

I fear this is what’s happening to crypto. It’s not a partisan issue for the public, but it will be for politicians and activists. It’s almost inevitable given the incentives of our two-party system to foster two coalitions of disparate interest groups only vaguely held together by ideology.

I can easily imagine an alternative world where Donald Trump shut down access to the financial system for Black Lives Matters protesters who then had to rely on Bitcoin for donations. In this world Elizabeth Warren is the champion of crypto as a counter to the big banks, DeFi as a more transparent alternative to Wall Street, and web3 as a bulwark against the big tech giants. In this world Ted Cruz is crypto’s fiercest critic given its use by North Korea, terrorists, and drug cartels.

It was probably going to happen one way or another. As soon as one party was perceived as being more pro- or anti-crypto (through the actions of crypto’s most vocal champions or detractors) a spiral of sorting was going to be kicked off.

I recently finished reading Not Born Yesterday: The Science of Who We Trust and What We Believe by French cognitive scientist Hugo Mercier. In it he explains that Americans are actually not very polarized on issues. Instead, they are affectively polarized (emphasis mine):

U.S. citizens are not all that ideologically polarized. However, they are perceived as being so: several studies observed that “people significantly misperceive the public to be more divided along partisan lines than it is in reality.” For example, the attitudes of Democrats and Republicans on free trade are remarkably similar, being very close to the middle of the road, with a slightly more positive view for Republicans. However, Democrats are perceived as being anti–free trade (which they aren’t, on average), and Republicans as being strongly pro–free trade (which they aren’t, again on average). These mistaken perceptions are driven by news consumption. In some countries, this means TV, but the most reliable driver of inflated perceived polarization is the heavy consumption of online media. This makes sense: a TV channel can attempt to portray the other side as made up of crazy extremists, but on social media, these crazy extremists are there for all to see, and it is easy to forget that they represent only a sliver of the population. Social media don’t make us more polarized, but they make us think we are; more precisely, social media don’t push their users to develop stronger views but, through increased perceived polarization, they might contribute to increased affective polarization, as each side comes to dislike the other more.

So it’s not that we’re more intensely disagreeing on political questions; it’s that we’re becoming more intensely tribal, something that’s largely fueled by dislike of the outgroup. The more we dislike the other side, the more prepared we’ll be to adopt the views of our co-partisans on matters of little importance to us and the less receptive we’ll be to contradictory information that supports the position associated with the outgroup. There’s no reason why one’s position on gun confiscation should predict one’s position on climate policy, but there are a uniform Republican and Democratic views on each and they’re largely fueled by in group signaling and negative partisanship.

And so we’ll get more of this:

As Trudeau has gone full dictator in Canada and stealing Canadian’s Crypto wallets, Democrats and Big Banks are lining up to take their cut of #Crypto and #blockchain.

Joe “the big guy” Biden always gets his cut.

Protect Crypto currency owner’s rights.

— Rep. Marjorie Taylor Greene (@RepMTG) February 17, 2022

Which is only going to drive otherwise sensible folks in the big mass of people who don’t have a view one way or another on crypto to just put it in the pile of outgroup ideas they reflexively abhor based on nothing more than affect. It’s the human condition.

So what’s the silver lining? If there is one, it comes from the Morning Consult poll I cited above:

Rather than partisan affiliation, the biggest split in opinion on cryptocurrency regulation comes in generation. Fifteen percent of millennials and 14 percent of Gen Z adults said they believe cryptocurrency has too much regulation, compared to just 2 percent of baby boomers who said they think cryptocurrency is over-regulated. Seven percent of Gen Xers said there are too many regulations on cryptocurrency.

Here’s hoping we can get past this.

Various and Sundry

I’ve got two gigs coming up.

First, on Wednesday, February 24, I’ll be interviewing Oonagh McDonald in a Federalist Society fireside chat on her new book, Cryptocurrencies: Money, Trust and Regulation. You can register to listen in here.

Second, on Monday, March 7, I’ll be the featured speaker at the CryptoMondays meetup in Greenwich, Connecticut. You can register to attend here.

Also: Check out my good friend and colleague Alex Sternhell on a recent podcast discussing crypto lobbying in DC.

Mandatory Reading

Reality Honks Back by N.S. Lyons is the most perceptive take I’ve seen on the Canadian trucker situation.

Nota Bene

Coalition of US crypto firms unveils travel rule compliance platform, TRUST — This is worth reading alongside J.P. Koning’s 2020 article about the London Bullion Market Association’s “good delivery” rules for gold (and his suggestion that such a system should be applied to Bitcoin).

Bitcoin (BTC) Isn’t Good for Laundering Money, Does It Need to Be? - Bloomberg

The Watchful Eye of the U.S. Dollar — Alchemist

The FATF recognises its human rights blind spot - The Blind Spot

Gas-Station ATMs Are a Banking Battleground - WSJ

Money That Won Melania Trump NFT Came From Melania Trump Wallet - Bloomberg

Why the word ‘freedom’ is such a useful rallying cry for protesters | CBC Radio