Regulation
As cryptocurrencies flood Washington, Congress looks to looser regulations
On Capitol Hill, the industry has shelled out more than $60 million to shape federal policy since the start of 2021, according to documents analyzed by The Washington Post and data from OpenSecrets and Public Citizen, two watchdogs of money in politics. The lobbying campaign helped spur the House on Wednesday to advance the first major piece of cryptocurrency legislation to clear both houses of Congress.
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The bill would shift some federal oversight of cryptocurrencies from the Securities and Exchange Commission, an aggressive regulator, to the Commodity Futures Trading Commission, which some critics see as weaker, more industry-friendly and underfunded. Coinbase, Ripple and lobbying groups including the Blockchain Association and the Crypto Center for Innovation helped House Republicans devise the legislative approach, then aggressively pressed Capitol Hill to garner votes in favor of its passage.
Industry executives, investors and workers — along with their companies’ official political operations — also contributed nearly $90 million to campaigns and other groups in the last two elections, according to the analysis. They supported the architects and supporters of the House bill, including Rep. Patrick T. McHenry, a North Carolina Republican who chairs the House Financial Services Committee. And the industry has funded a trio of powerful new super PACs, which have flooded the airwaves with TV ads touting friendly candidates in both parties, often without mentioning cryptocurrencies at all.
The spending estimates are undercounts, in part because federal campaign finance laws do not require companies and executives to disclose donations to certain nonprofit groups. Even so, the figures suggest that the cryptocurrency industry now belongs to a category of Beltway powers that regularly shell out large sums to influence decision-making.
Speaking to reporters the day before House approval, McHenry acknowledged the myriad ways cryptocurrency companies are “maturing” in Washington, a dynamic he described as critical to crafting the first major legislation on congressional cryptocurrencies.
“That’s a plus for this vote,” McHenry said of the industry’s reach, “and for politicians to see it.”
Coinbase declined to make an executive available for an interview. Brad Garlinghouse, CEO of Ripple, said cryptocurrencies had a strong political rise to “provide perspective on all the constructive and positive aspects of this industry.”
The Senate has not said whether it plans to consider the legislation this year. The White House last week said it “opposed” the proposal but did not explicitly threaten to veto it. Other top federal watchdogs have made more dire calls in recent days, warning that the House cryptocurrency bill could unleash new dangers for the economy.
“The cryptocurrency industry’s record of bankruptcies, fraud and bankruptcy is not due to a lack of rules or the rules being unclear,” SEC Chairman Gary Gensler said in a statement. “It’s because many players in the cryptocurrency industry don’t play by the rules.”
The industry’s rapid rise in Washington is astonishing, two years after the disastrous failure of FTX, a marketplace where people could buy and sell virtual currencies – known as an exchange – that had been the world’s third-largest platform and was once worth 32 billion dollars. .
In March, a federal court sentenced the company’s once-ubiquitous leader, Sam Bankman-Fried, to 25 years in prison, finding him guilty of numerous crimes stemming from the misuse of customer deposits for risky bets and illegal political donations. His actions ultimately wiped out FTX, leaving the company bankrupt and customers fighting for refunds.
Following the FTX scandal, many lawmakers have raised the alarm that a broader collapse of cryptocurrencies could endanger the economy as a whole. But those warnings have only accelerated the political evolution already underway in the industry, which quadrupled the number of registered lobbyists in Washington from 58 in 2020 to more than 270 by the end of last year, federal data shows.
“It takes an organized, concerted effort to engage with Washington,” said Kristin Smith, chief executive of the Blockchain Association, which represents many of the largest crypto platforms and investors. She added that “it was very clear in the post-FTX crash that the cryptocurrency industry was on the hook.”
On Capitol Hill, the industry has specifically sought “regulatory clarity,” primarily through legislation that would place oversight responsibilities on the Commodities Trading Commission, a half-century-old agency originally intended to oversee corn and grain futures. Many cryptocurrency advocates consider him a friendly regulator, at least compared to the SEC, which has brought 170 enforcement actions against digital currencies and trading platforms, including Binance, Coinbase and Ripple, in recent years.
By the summer, House Republicans responded with the bill known as FIT21, a highly complicated proposal that would create a path for cryptocurrency companies to be regulated primarily by the CFTC.
The measure would also relax some of the financial information that cryptocurrency companies must provide to customers, while limiting when investors could sue for abuse. Crucially, the bill would provide no new funding to the commodities commission, despite its recent requests to Congress for a larger budget. The commission did not respond to a request for comment.
Many cryptocurrency lobbyists and lawyers acknowledge that they were closely involved in drafting the proposal. Sheila Warren, chief executive of the Crypto Council for Innovation, said last week that her group “worked out” some of the provisions “a year and a half to two years ago.” The group is backed by Coinbase and investors including Andreessen Horowitz, a prominent Silicon Valley venture capital firm.
The industry’s closeness to the legislation alarmed consumer watchdogs, who argued that the House threatened to create serious regulatory gaps.
Lawmakers still passed the measure on a bipartisan 279-136 vote Wednesday, marking the latest victory for the industry.
Many Democrats said the dynamic was reminiscent of the 2008 financial crisis, when Washington failed to stop the country’s largest banks from underwriting risky mortgages. About 6 million people lost their homes in the ensuing financial crisis and recession, while the U.S. government spent trillions of dollars to pull the nation out of the rubble.
“Before the crash of 2008, when I talked about how inadequate our oversight of banks was, I kept saying: Today everything seems fine, but it’s going to end badly,” Senator Elizabeth Warren, Democrat of Massachusetts, said in a recent interview. “I feel like this today. This may seem like a good thing right now, but inviting cryptocurrencies deeper into our economy without putting adequate regulations in place will end badly.”
Cryptocurrency companies strongly oppose these comparisons, arguing that members of Congress simply don’t understand the new, rapidly evolving industry. To further shore up support on Capitol Hill, they have set their sights on this year’s elections. Ripple CEO Garlinghouse cited “Elizabeth Warren’s megaphone” as the reason for the industry’s massive campaign spending.