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Will crypto crash the blue wave? Probably not a question you’ve been asking, but you should.

Paul Krugman here with a video update for September 22nd. I want to talk about something that was a very big deal in the way we talked about the 2024 election, which was the role of the cryptocurrency industry.

We’re talking about it a lot less this time, I think largely because AI has stolen the limelight. But crypto is still out there. And while it has not succeeded in creating a viable business in the normal sense, it has been extraordinarily successful at buying political influence. And they’re set to do it again.

Now, the background here is, as I record this, the midterm elections look, based upon polling, based upon just impressions, looks like a big blue wave. Elliot Morris gives the Democrats a 97% chance of taking the House and two-to-one odds of taking the Senate.

But there’s still a few weeks to go and it looks like there’s a big wave of right-wing money that’s going to come crashing in. We don’t know how effective that will be. The role of money in politics, particularly of last-minute advertising blitzes, is somewhat unclear.

But it is coming and crypto is going to be a pretty big part of it. Based on Open Secrets, which tracks campaign financing, it appears that the crypto industry, which spent big in 2024, is going to spend even bigger in 2026, which is unusual because midterms are usually lower stakes than presidential years: They don’t usually involve as much spending.

But this industry is going to go all in. The crypto political strategy has been to knock out candidates that it considers hostile. And that is a strategy that was very effective in the last election cycle. They spent money in primaries knocking out Democrats, because Democrats were by no means united in their skepticism about crypto, but in some cases in favor. They knocked out Democrats in favor of other Democrats in primaries. And then in the general election, they spent quite a lot, not entirely on Republicans, but there were some big cases. And then Ohio spending was a particular success story.

And in general, crypto became seen in Washington as a force to be afraid of.

Not a force that has actually managed to get anywhere in the economy. It’s nothing like AI, which is everywhere. Crypto is still barely used for legitimate transactions. According to the Federal Reserve, only 2% of Americans have actually used crypto to buy something other than assets. So basically non-speculative crypto use remains trivial. And that’s after many years of trying to market this stuff.

But the political effectiveness has been huge, and it has intimidated a lot of politicians. Back in February, Chuck Schumer warned his colleagues not to do too much to offend Fairshake, the big crypto lobbying group.

Crypto has also, in addition to campaign contributions, done a lot of what in the old days, we would call bribery. There’s a lot of money that flows from the crypto industry to politicians and their relatives, and not just Trump. I don’t really want to ask too much about why there’s a lot of money going into a firm founded by Senator Gillibrand’s son. So there’s a big financial issue.

Now, the Clarity Act posed as “we’re going to establish a sound regulatory framework, especially for stablecoins” — cryptocurrencies that supposedly have a guaranteed value in dollars. Why exactly did Democrats turn on it? I mean, on the merits, they were right to be against this because whatever one may say, the purpose of the Clarity Act was to kind of legitimize cryptocurrency in the economy and particularly to legitimize stablecoins, which are, once you cut through the jargon and all of that, essentially poorly regulated banks.

It would essentially be posing new threats to the stability of the financial system and undermining banking regulation, which is something, of course, t