May 30, 2024

Crypto industry steps up political donations as mood in Washington sours

Crypto companies have sharply increased donations to US politicians as sentiment in Washington hardens against the digital assets market.

Companies including Coinbase, the Nasdaq-listed exchange, stablecoin operator Circle and a16z, the crypto investing arm of venture capitalists Andreessen Horowitz, are directing more funds towards electing pro-crypto legislators and influencing stalled bills in Congress ahead of the presidential election next year. They have been joined by high-profile venture capital and digital asset investors such as Ron Conway, Fred Wilson and the Winklevoss twins.

This week Coinbase, Circle and a16z were among the companies to put $78mn into Fairshake, a federal super Pac that can take unlimited money from corporations and individuals to spend on elections, to be directed to “pro-crypto leadership”.

“We’re going to do whatever it takes to depoliticise crypto,” said Faryar Shirzad, chief policy officer at Coinbase. “Our lobbying, our grassroots work and now Fairshake will create room for a public debate on the merits, instead of our industry being used as a political football for demagogues who don’t understand the social benefits of the technology.”

The super Pac marks a political step up for an industry that has collectively spent small amounts in previous years. Coinbase is projected to spend just $4mn on lobbying this year while Circle has spent just $760,000 since 2021, according to public filings.

But the mood in Washington is increasingly being shaped by crypto critics, notably Elizabeth Warren, the Democratic senator. In October she and around 100 lawmakers sent a letter to the White House and Treasury calling for a crackdown on illicit crypto activity following reports that digital assets had played a role in fundraising by militant groups in the Middle East.

“Digital assets are creating a national security risk,” Warren told the Financial Times in a recent interview. “It’s not about one bad actor, it’s about an entire system that permits the transfer of value with no restrictions.” 

“The something in crypto that attracts these criminals is the fact that it’s unregulated,” she added. “In fact, some of the crypto actors aggressively advertise that they do not follow international money laundering rules, holding a giant sign up that says, ‘Launder your money here’.”

Political swipes against crypto have risen in recent months after former FTX chief executive Sam Bankman-Fried, one of the biggest individual donors and crypto advocates, was jailed for fraud. Rival Binance admitted failing to protect against money laundering and sanctions evasion, further souring the mood against crypto on Capitol Hill.

Fairshake said its formation was in part a “reaction to key members of Congress’s failure to pass a clear regulatory and legal framework” for crypto.

The fines and penalties handed to companies like Binance this year have been for violations of existing federal securities and money laundering laws. Potential crypto-specialist rules that have failed to make significant headway include ones that cover stablecoins, digital tokens that are akin to a dollar in digital markets and pegged to the US currency.

Highlighting the challenge the industry faces, crypto’s recent scandals have even united typical adversaries like Warren and the banking industry.

Last December, Warren proposed a bill designed to bring the crypto industry up to speed with the anti-laundering obligations that govern the rest of the established financial world.

“If they’re not crooks or criminals, they shouldn’t worry about this,” Senator Roger Marshall, a Republican co-sponsor of the bill, said. “We’re holding crypto to the exact same standards as we do banks.”

“We appreciate Senator Warren’s collaboration with the financial sector to combat illicit finance in all its forms,” said Gregg Rozansky, senior associate general counsel at the Bank Policy Institute.

At a Senate hearing this month, Warren teed up a question about crypto to Jamie Dimon, the influential chief executive of JPMorgan, who reiterated his distaste for the sector: “If I was the government, I’d close it down,” he said.

“The fact he said it so bluntly on such a high-profile stage showed me there was no downside to it. He’s not afraid of the crypto industry,” said one person who lobbies for crypto firms in Washington DC. “The industry is finding it pretty hard,” the person added.

The Fairshake super Pac is also on the hunt for new allies as another political cycle in Washington comes to an end. To date, Fairshake has spent a modest $292,000, much of which has gone to Patrick McHenry, the former chair of the House financial services committee, but who will not be seeking re-election in 2024. As committee chair McHenry had co-sponsored legislation on the oversight of the use of stablecoins.

However November’s elections are beginning to loom large in calculations on fundraising.

“If Democrats win the presidential election, and especially if they sweep Congress as well, then yes there will almost certainly be major challenges from a regulatory perspective in the upcoming years,” said Orlando Cosme, founder and managing attorney at law firm OC Advisory.

“So I view the increased lobbying effort as more of an attempt to impact this election and make sure that pro-crypto candidates, from both sides of the aisles, are elected rather than a response to recent enforcement actions and court cases,” he added.

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