Crypto Wildcatters and the Future of American Politics
In the late 1930s, a group of hopeful misfits ventured into the East Texas wilderness hoping to strike oil. What happened next changed their lives and the American political landscape forever.
Texas was an oil hotbed, but Texas is a big state. Most of the drilling took place in known pockets on the Gulf Coast. These fields were well-defined, high-yielding, and solidly controlled by the biggest barons in the oil industry. In fact, Standard Oil—John D. Rockefeller’s company—owned 75% of the oil in Texas.
Many oil fortunes had already been made. And many of the men bound for East Texas may as well have been selling horses and buggies in the 1970s. That is, they were late to the party.
At least that was the conventional wisdom.
The men heading to East Texas weren’t the big oil execs. They were men down to their last dollar. They’d struck out on other ventures and were throwing one more Hail Mary. Most of them had nothing more than a dollar and a dream.
They were called wildcatters.
The conventional men running the big oil companies avoided the speculation of east Texas. But then, strange things started to happen.
One by one, the wildcatters began striking oil. At first, everyone wrote it off as a fluke, but as more speculators began striking black gold, it became harder to ignore.
As it turns out, these crazy men—down to their last dollars and their last hopes—stumbled upon one of the largest oil fields in the United States. The East Texas pool contained five billion barrels of oil—fifty times the supply of the Gulf Coast fields dominated by the major players.
Nearly overnight, these formerly destitute wildcatters became wealthy beyond their wildest dreams.
Crypto Boom
As I read about the East Texas oil boom of the 1930s, I couldn’t help but draw a comparison to the crypto boom we’re watching today.
A group of misfits stumbled off into the fringes of finance and returned wealthy beyond belief. They did it in spite of the Merrills, Morgans, and Goldmans.
It’s far from a perfect analogy, but plenty of overlap exists.
The East Texas wildcatters were much greater misfits than the crypto pioneers. The wildcatters found a new supply of something that already existed while the crypto pioneers created something entirely new. But they both disrupted an industry—oil for the wildcatters and finance for the crypto pioneers. And they both created tremendous wealth for people who were far from financially free.
To put it in perspective, Bitcoin, the first cryptocurrency, was created in 2009. In the 12 years since its creation, its market capitalization grew from zero dollars to about $1.2 trillion—significantly faster than any company has reached the same valuation.
That’s a market cap larger than most of the companies in the S&P 500.
It’s bigger than Tesla and Facebook.
It’s twice the size of Berkshire Hathaway.
It’s nearly three times the size of Walmart, and it’s more than half the size of Amazon.
That’s a lot of wealth creation in little more than a decade.
And who accumulated this wealth? It wasn’t the mainstream financial giants. It flowed to the fringes. It flowed to the early adopters of technology. It flowed to the people willing to speculate—the crypto wildcatters, if you will.
I mentioned Bitcoin’s market cap above, but that’s just a portion of the entire cryptocurrency universe. If you add Ethereum’s market cap of over half a trillion dollars, you’re approaching a $2 trillion market. Add in alt-coins like Solana, Polkadot, and Cardano, shitcoins like Dogecoin, Shiba Inu, and every other cryptocurrency on the long list, and you have a total crypto market value of about $2.8 trillion.
This is $2.8 trillion that was created essentially out of thin air in the last twelve years. It has padded the pockets of tech geniuses, amateur traders, even high school kids.
I’ve seen several stories in the last few weeks of people making fortunes on Shiba Inu—a so-called shitcoin trading at a price of about $.00006 apiece. One wallet held 70 trillion coins, originally purchased in August of 2020 for $8,000, now worth over $5 billion. The owner’s identity hasn’t been revealed, but another man, a supermarket warehouse manager, was able to retire after selling more than a half million dollars worth of Shiba Inu.
Simple Google searches reveal countless examples of tremendous wealth accumulation for average people in short periods of time via cryptocurrency. And based on everything we’re seeing—from consistently rising prices to publicly traded companies buying coins—we may very well be in the early innings of the crypto boom.
What’s interesting about rapid wealth accumulation by new groups of people is how that money is ultimately spent. Money can buy influence, and when new people have money to spend, the winds of change are on the horizon.
This is one of those cases where history may not repeat, but it will probably rhyme. So what can we predict about the crypto boom from studying the wildcatters? Let’s travel back to East Texas to find out.
Wildcatter Fund Flow
The oil giants of the 1930s had been established for decades, and they used their money to buy the political influence that benefited their businesses. During the New Deal era, oil companies wanted less regulation, fewer rights for workers, and more tax loopholes to keep money in their proverbial pockets.
These policies aligned with Republican politics, so the old oil money flowed from the wells to the Republican Party.
But when the wildcatters struck black gold, they had money to spend and a different incentive structure on which to spend it. Remember, before getting lucky in East Texas, these wildcatters were blue collar boys. They were living through the Great Depression, and they often struggled to find jobs and feed their families. Before striking it rich, they had benefited greatly from FDR’s New Deal programs.
The newly rich oil men had different political allegiances than those of the traditional oil interests. They wanted to support the Democrats, who would in turn guarantee regulations, or lack thereof, to benefit the wealthy wildcatters and protect them from the entrenched oil giants.
The timing of this new Texas wealth was impeccable. Entering the 1940 election, the Democrats were facing disaster in the House. In the 1938 election, they had lost 82 seats to the Republicans and, while they still held the majority, the 1940 election was looking like it would flip control.
The financial picture was bleak for the Democrats. Republican candidates had more money, and money won elections. A study cited in Robert Caro’s first book on LBJ indicated that more than 90% of candidates won when they outspent their opponents.
The Democrats needed money to win their 1940 races, and the newly wealthy wildcatters had the necessary funds.
As one oil historian wrote, “More independent oil fortunes came out of the East Texas field than from any other place in the world.” And because these fortunes flowed not to notable people but to the average men of Texas, none of the politicians understood the extent of their wealth.
The men raising money for the Democrats’ campaigns had no idea about the wildcatters’ wealth. But the wildcatters had a deep interest in supporting candidates on the Democrat ticket. There was one politician, however, who did understand the extent of the wealth.
That man was Lyndon Johnson. In the 1940 election, Johnson acted as the middleman between the wildcatters’ wealth and the Democrats’ campaigns. Johnson successfully funneled funds from the wildcatters’ wallets to Congressional campaigns across the country.
Instead of losing control of the House—the Democrats expected to lose eighty seats in the 1940 election—they maintained their majority and actually won eight additional seats in the election.
The outcome was entirely the result of Lyndon Johnson identifying a new source of money and leveraging it to accomplish his goals.
This newfound wealth, when put to work in the political arena, changed the course of history in the United States.
The Rise of the Crypto Wildcatters
Fast forward eighty years, and we’re looking at a similar situation. History doesn’t repeat, the saying goes, but it often rhymes.
I hear a striking rhyme between the wildcatter wealth of the 1930s and the crypto wealth of the 2010s and 20s.
So who will harness that wealth and where will it flow? If I knew the definitive answer I’d probably be writing for The Economist instead of my personal blog, but here’s my best guess.
The newly rich crypto wildcatters are the people who detest big government. The primary ideas that underlie cryptocurrency are decentralization, autonomy, and self governance.
The people putting the majority of their wealth into bitcoin are the same ones who believe the Fed is going to cause hyperinflation by devaluing the dollar. They have no faith in the government to manage monetary policy.
For this reason, they are unlikely to support the big government of the Democratic party.
They are equally unlikely to support the Republican party. Cryptocurrency is both innovative and progressive—two qualities you rarely find in the same sentence as the word Republican.
So what party supports innovation while keeping the government small? That sounds a lot like the Libertarian party to me.
And what’s interesting about the Libertarian party right now is that they’re perfectly poised to draw support from former Republicans. Plenty of historically Republican voters—who also supported Trump—are fed up with a Republican party that largely condemned their candidate.
With the right messaging and persuasion, Libertarian candidates could convince Republican voters to leave the party in droves.
So what’s the missing link?
Right now the only thing we’re missing is the present day Lyndon Johnson. To see this possibility become a reality, we would need a central figure to identify the massive amounts of new wealth held by crypto wildcatters and funnel those funds into Libertarian campaigns.
A 2018 article from FiveThirtyEight explains the mechanics behind how money influences elections. The more money spent on a campaign, the more likely a candidate is to win an election. This relationship is clear. It is not, however, a definitive causal relationship.
The article also explains that political spending is most effective when it is used to raise awareness of an unknown candidate and in races where the outcome is less predetermined by party lines.
Advertising is useful for making voters aware that a candidate or an issue exists at all. Once you’ve established that you’re real and that enough people are paying attention to you to give you a decent chunk of money, you reach a point of diminishing returns…But a congressperson running in a close race, with no incumbent — or someone running for small-potatoes local offices that voters often just skip on the ballot — is probably getting a lot more bang for their buck.
If the Libertarian party wants to make a legitimate splash on the national political stage, they will harness money from the crypto wildcatters and spend it on Congressional races in evenly divided districts. They will paint themselves as the better alternative to the Republican party, and they’ll sway Trump voters who would’ve otherwise cast a Republican ballot.
Here’s a crypto wildcatter basically saying the same thing.
The process will be slow, if it happens at all. But Lyndon Johnson and the East Texas wildcatters provided a playbook for changing the American political landscape.
There is a new source of money.
There are new incentive structures.
There is a traditional political party ripe for disruption.
This leaves only one question: Is there a present day Lyndon Johnson to identify the money tree and funnel its fruits in the right direction?
If the answer is yes, we’ll be seeing some interesting political shifts in the years ahead.
Photo by Zbynek Burival on Unsplash
