Trying to get the best government possible

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Hello and welcome to the FT Cryptofinance newsletter. This week we’ll take a look at the US elections.

The cryptocurrency market may already be looking forward to life under the next US administration, but in the meantime it is still hoping that the first set of digital regulations will be passed before November’s presidential election.

Executives are excited that at least one of the many cryptocurrency regulations will be passed. Among the banknotes in circulation are some involving stablecoins and a central bank digital currency.

But the largest is the so-called FIT21. It establishes the difference between digital security and digital commodities and specifies which federal agency will regulate them. The bill passed the House of Representatives and is now in the Senate.

Michael Novogratz, CEO of Galaxy Digital, said at a Piper Sandler conference in New York on Wednesday that “there’s a chance it gets made this year.”

He added that Sen. Chuck Schumer, an influential voice, had told him personally as recently as Monday that “if a decent bill is introduced. . . will push it to the vote and President Biden will not veto it.” (Comments courtesy of my colleague Jennifer Hughes)

“There is a complete change in body language and practice from our regulators. It gives me great confidence that if it’s not in this term, it will be in the first three months of the next administration, regardless of which administration wins. We will get better regulation and that will unleash another monster wave,” Novogratz said.

US crypto firms have long complained that internal policy is defined ad hoc by regulatory enforcement or case-by-case court rulings.

Underscoring the point, Paxos, a stablecoin operator, announced on Wednesday a first-of-its-kind stablecoin that pays interest to holders for depositing their money into the token.

But Paxos – which is headquartered and regulated in New York and has gone to great lengths to comply with whatever regulators ask – will run it from a branch in Abu Dhabi. This stablecoin, called Lift Dollar, is not available to US customers.

Charles Cascarilla, CEO of Paxos, said the lack of regulatory clarity on stablecoins was a deterrent. “We didn’t try to go to the United States [regulators]. When we did that, we got a pushback from the SEC.”

But the chances of any of these bills passing remain very remote. In a research note this week Nikolaos Panigirtzoglou, an analyst at JPMorgan, said that the stablecoin law is very likely to be passed while FIT21 is “unlikely” to happen before the elections.

Faced with this uncertainty, others are taking a more calculated approach. Coinbase, a US stock exchange, said on Monday it had donated $25 million Fairshakea SuperPAC or fundraising vehicle capable of spending unlimited amounts to support or oppose candidates.

Fairshake has an explicitly pro-digital asset approach. Fairshake has previously run ad campaigns vilifying anti-crypto candidates, even though the word “crypto” rarely appears in the ads.

Days earlier, the SuperPAC received a $25 million donation from Ripple, a US cryptocurrency operator, bringing its fundraising (including its affiliates) to $161 million and making it one of the largest of these vehicles.

The timing is unlikely to be a coincidence. On Friday, the White House finally vetoed the cancellation of an accounting rule. It had the rule, known as SAB121 and covered in this newsletter two weeks ago – had been canceled, it would have become easier for banks to hold digital assets for customers.

Brian Armstrong, CEO of Coinbase, has made his strategy quite clear. “The best way to achieve regulatory clarity in democratic countries is to elect pro-crypto candidates on both sides of the aisle and vote anti-crypto candidates out of office,” he wrote in a blog send.

It was, he added, a bipartisan approach. “The House and Senate help determine what cryptocurrency legislation gets passed, among other things, so increasing the number of pro-crypto members is critical,” she wrote.

If nothing else, it shows how quickly crypto has grown. Ten years ago we wanted to avoid regulation; subsequently the industry wanted to explain its advantages. But that accomplished nothing, and having Sam Bankman-Fried as the face of the market in Washington didn’t really help. Now he has decided to play by the same rules as everyone else.

Crypto firms have also mastered other opinion-forming tactics, such as using questionable polls. Coinbase repeatedly claims that “52 million Americans own cryptocurrencies,” a claim based on an online survey conducted by a polling firm in mid-2023 using a sample of just 2,700 people.

Armstrong presented Washington’s sometimes tougher, brass-knuckle style, according to Charley Cooper, a former Washington lobbyist. “It’s about getting your person elected, defeating your opponent and getting rid of people who are going to be problematic.”

Nonetheless, digital asset companies still spend less than other financial services companies. Jeff Yass’ Susquehanna International contributed $70 million and Ken Griffin, founder of hedge fund Citadel, nearly $60 million in 2023-24, according to the fundraising data compiler OpenSecrets.

Overall, the financial services industry has spent more than $500 million in each of the last 10 years. According to OpenSecrets, the insurance sector was the largest contributor to last year’s total of nearly $600 million.

Unfortunately for the plutocrats, money does not guarantee results: the financial sector wanted to get rid of SAB121 and yet it is still standing.

There is an irony in the fact that cryptocurrencies, a libertarian dream, realize they need the financial and legal system to validate their existence and are hiring expensive consultants to do what others already do routinely in Washington.

However, the cryptocurrency industry has now recognized that this is what it needs to do, has understood that the game is not over and is thinking about the long term. As Omar Little, the gun-toting antihero of The Wire, said: “The game is out there and you have to play or be played.”

What is your opinion? Email me at philip.stafford@ft.com

Weekly highlights

• A group of US legislators called on President Biden to secure the release of Tigran Gambaryan, the Binance employee detained in Nigeria since February. They described Gambaryan, who reportedly has malaria, as being held hostage and said “we fear for his life.”

• Robin Hood agreed to purchase European cryptocurrency exchange Bitstamp is worth $200 million, accelerating the US retail broker’s expansion outside its home market.

• Japanese cryptocurrency exchange DMM Bitcoin She said would raise $320 million from companies that are part of the DMM parent group to help repay customers after $305 million of customer money was stolen last month.

Data Mining: The Lazy Days of Summer

Cryptocurrencies can be traded at any time of the day, on any day of the year, but in reality they are subject to the same ebbs and flows as other markets. Activity is reduced on weekends and major religious holidays. And in the summer we go on holiday. As data from Kaiko Research shows, the decline in activity in the third quarter is very pronounced. Let’s see if the introduction of US bitcoin spot ETFs also changes this dynamic.

Cryptofinance is edited by Laurence Fletcher. To view previous editions of the newsletter click Here.

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