April 13, 2024

The Staying Power of Crypto’s Political Machine

The final word in Sam Bankman-Fried’s criminal fraud case came down last week, with the disgraced crypto king receiving a 25-year prison sentence and an $11 billion forfeiture.

It was not only an end to the most high-profile corporate fraud trial of the past several years. It was also a final judgment on one of the most prominent election donors in the 2022 midterms. But if you thought that signaled the end of crypto’s influence on congressional campaigns, think again.

The political influence machine that Bankman-Fried commandeered continues on with a new set of industry players. This election cycle, the ringleaders are the cryptocurrency exchange platforms Coinbase and Ripple; the notorious Winklevoss twins, who co-founded the crypto trading platform Gemini; and the main venture capital firm financing crypto projects, Andreessen Horowitz. They’re picking up where Bankman-Fried left off, trying to buy their way into the good graces of the political class.

A triumvirate of crypto PACs have assembled: Fairshake, Protect Progress, and Defend American Jobs. Together, they have raised roughly $80 million, and the total price tag might reach or exceed the amount that Bankman-Fried spent in the 2022 elections, which topped out at $100 million.

Any talk about pandemic prevention or effective altruism–related causes that accompanied the crypto-shilling in 2022 has completely fallen away. This is unilaterally a story of an industry lobby using millions of dollars in donor cash to influence regulatory policy and chill enforcement of its rather dubious financial product.

You’d think Washington might be somewhat more bashful about accepting these troves of cash. The entire country did after all just witness one of America’s most prolific campaign spenders get convicted over what essentially amounted to a dressed-up Ponzi scheme. And it’s not just FTX. Lawsuits, criminal penalties, bankruptcies, and other investor fraud cases have run rampant over the past two years, across numerous players in the digital-asset sector. Binance, another major facilitator of crypto trades, paid $4.3 billion this year to U.S. authorities for hosting money-laundering operations, one of the largest criminal penalties in history. Even Coinbase is actively embroiled in a major lawsuit with the Securities and Exchange Commission.

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“It’s a lawless industry with a business model that is basically ‘catch us if you can’ [with lawsuits], and before you can do that we’ll buy enough politicians to get a special law passed that has the appearance of regulation with the reality of deregulation,” said Dennis Kelleher, CEO of the financial reform nonprofit Better Markets. Kelleher notes that the crypto industry also doubled its lobbying spending this past year, and has gone on a hiring spree to recruit former congressional and government staffers to assemble their legal team and curry favor in Washington.

Any optimism that politicians might swear off the crypto bucks has been utterly dashed. As it turns out, there are more than enough desperate candidates eager for an edge on their campaign opponent who are willing to court the industry without any shame or fear of blowback. The leadership of both parties are welcoming the contributions as well.

In the 2022 midterms, Bankman-Fried’s influence machine often marched in lockstep with pro-Israel groups to attack progressives in a number of key races, like Jamie McLeod-Skinner and Nida Allam in Democratic primaries for House seats in Oregon and North Carolina. Bankman-Fried also cut significant checks to Democratic Majority for Israel.

Though it’s been less visible this year, the same pattern appears to be at play. Andreessen Horowitz gave $250,000 to United Democracy Project, the super PAC affiliated with the American Israel Public Affairs Committee. But the ties actually run deeper.

The lead spokesperson and organizer for Fairshake PAC, the umbrella group orchestrating crypto spending this year, is Josh Vlasto, a former aide to current Senate Majority Leader Chuck Schumer and former New York Gov. Andrew Cuomo. Vlasto built a reputation in Albany for his uniquely combative approach to the press corps.

Vlasto previously served as communications chair on the board of the Jewish Democratic Council of America (JDCA) as of 2020. Though usually known for being more liberal, the JDCA has recently moved toward firmly aligning with AIPAC and its allies. This year, for example, JDCA is joining AIPAC and DMFI in opposing progressive incumbent Reps. Jamaal Bowman (D-NY) and Cori Bush (D-MO).

At the same time as he’s running Fairshake, Vlasto is also coordinating the billionaire-backed Facts for Peace, a pro-Israel operation set up after October 7th to shape the information environment around the war in Gaza. Facts for Peace was one of the top ad buyers across the web in the early months of the war, spending nearly $500,000 on targeted ads to combat online criticism of Israel.

CRYPTO’S IMMENSE SPENDING NUMBERS this election year are buoyed by the rally that virtual currencies have experienced recently. The price of Bitcoin jumped to a record high of $73,000, in part because mining has slowed, limiting supply. (Currently, BTC sits at $69,000.)

The Biden administration aided this market rally, and in so doing helped pad the deep pockets of the donors now spending on campaigns. SEC chair Gary Gensler, who has a reputation of being steadfastly against crypto, sided with two Republican commissioners to legitimize Bitcoin’s highly volatile use by large financial institutions through exchange-traded funds.

Armed with its war chest, Fairshake PAC has been choosing races selectively to root out politicians who’ve been critical of the industry and prop up new allies to take their place, on both sides of the aisle.

Its first victim was progressive Rep. Katie Porter (D-CA), who was recently knocked out of the California primary for an open Senate seat vacated by the late Dianne Feinstein. Porter is a close ally of Elizabeth Warren, the main thorn in the industry’s side, and received an “F” rating from the group Stand With Crypto for voting against their preferred legislation in a Financial Services Committee markup.

Her opponent Adam Schiff, now California’s likely next senator, received an “A” rating after putting out a pro-crypto message on his campaign website, saying that he supported “comprehensive regulatory frameworks” for cryptocurrency and blockchain companies to make sure that “the United States remains the global leader in these important new technologies.”

Fairshake was the largest outside spender in the race, pumping $10 million into negative social media and television ads hitting Porter. Notably, the ads never directly attacked Porter’s record on crypto, but instead called her a hypocrite and a fake for allegedly taking corporate money. (The claims were suspect; the “Big Pharma” donation Porter allegedly received was a $500 contribution affiliated with a company that has one FDA-approved drug, and has been bought out by a rival.)

As Kelleher points out, the fact that crypto PACs don’t mention crypto is revealing.

“It’s a de facto admission that they know the American public is skeptical if not hostile to the bogus claims of crypto and know about the lawsuits,” said Kelleher.

It’s debatable whether crypto can claim its ads swung the primary in such a large state like California. Perhaps more crucially, Schiff’s campaign employed an unusual strategy to prop up the Republican Steve Garvey.

Porter, however, called out Fairshake’s outsized involvement in the race after her loss. Her controversial “rigged” comment was a reference to the “shadowy billionaires” behind crypto front groups.

Fairshake and its affiliated super PACs are also intervening in the two most contentious frontline races that will determine which party controls the Senate. They’re opposing Democrats Sherrod Brown in Ohio and Jon Tester in Montana, both senior members of the Senate Banking Committee (Brown is the chair) who have been critical of the industry. Brown also sits on the Agriculture Committee, which has oversight authority over the Commodity Futures Trading Commission, the agency that crypto executives want to lead oversight efforts, instead of the SEC. Brown has blocked legislation that would put the CFTC in the driver’s seat for regulating the industry.

The crypto influence operation this election cycle, in other words, appears motivated to flip the Senate to Republican control, while winning over more influence in the House.

REPUBLICANS GENERALLY HAVE BEEN more favorable to looser regulations on crypto, so the task for these PACs is to gain more of a foothold in the Democratic Party. Fairshake’s top donors—Ripple, Andreessen Horowitz, and Coinbase—have made over $1 million in contributions to the House Majority PAC, a campaign spending arm controlled by House Minority Leader Rep. Hakeem Jeffries (D-NY). Coinbase also added $500,000 to both the Republican Senate Leadership Fund and the Democratic Senate Majority PAC, according to campaign finance analyst Open Secrets.

Two races in particular are emblematic of crypto PACs choosing friendly Democrats to support in crowded open-seat fields.

In the new plurality-Black Second Congressional District in Alabama, which is heading to a Democratic primary runoff, Shomari Figures is getting a boost over his opponent thanks to $1.7 million in campaign spending from Protect Progress.

And in Texas’s 32nd District, Julie Johnson recently won the contested Democratic primary to replace Colin Allred, who is running for U.S. Senate. Johnson benefited from crypto funding as well.

As with Schiff, both Figures and Johnson put an entire section on their campaign pages dedicated to supporting crypto, as a clear signal to super PACs to court the industry’s financial support. Voters seem to care substantially less; crypto has never been listed as a top 20 priority in issue surveys.

In certain races, crypto groups haven’t had to spend any money at all to sway politicians’ behavior. Fairshake has said it still plans to hop into the Senate races in Michigan and Maryland but hasn’t yet picked its sides. That looming threat is already shaping the candidates’ positions.

In Maryland’s Democratic primary, both Democrats, Rep. David Trone and Prince George’s County Executive Angela Alsobrooks, have signaled their openness to crypto, despite previously not taking strong stances. Trone signed on to a letter last year with crypto critic Elizabeth Warren calling for stronger enforcement, but more recently has been echoing industry talking points. Trone has said that he believes in legal certainty for crypto companies so that the U.S. does not “fall behind in the global race for technological advancement and economic competitiveness.”

Alsobrooks, for her part, has also sung the praises of blockchain technology, underscoring that it “can help all Americans, including traditionally underserved communities, have a first chance to build generational wealth for their families.”

As recent litigation has shown, poor communities have also been the most exposed to crypto’s wallet-siphoning practices.

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