A
Bitcoin
exchange-traded fund may be coming soon, giving crypto backers their biggest victory in a decade. For crypto to make it further into the mainstream, it may need a hand from Congress. The industry’s lobbyists are working feverishly to make it happen.
Two recent events illustrate how crypto money keeps flowing. Sen. Kirsten Gillibrand (D., N.Y.) held a campaign fund-raiser in Manhattan in September, delivering upbeat remarks about legislation moving through Congress that would clarify how crypto should be regulated, according to attendees and an invitation seen by Barron’s. Access to the event, held in the SoHo apartment of a crypto executive, went for $500 to $21,600 per head.
The previous day, dozens of crypto executives hosted a fund-raiser for Republican presidential candidate Vivek Ramaswamy, who attended an industry conference in New York. The cost of attendance ranged from $1,000 for a ticket to $6,600 to co-host. “If we want to see crypto prioritized as a campaign issue, we need to show candidates that our support matters!” read the invitation.
Crypto and Washington, D.C., seem locked in a mutual embrace. In the second quarter, crypto firms spent nearly $6.6 million on lobbying, the most in any quarter, according to federal records compiled by OpenSecrets.org. Since 2020, the industry has spent more than $45 million on lobbying, while crypto company employees, led largely by FTX and its founder, Sam Bankman-Fried, have given $98 million in contributions to congressional lawmakers’ campaigns.
Leading congressional figures in both the House and Senate have raised money from crypto executives. While Republicans tend to be more crypto friendly, Democrats like Gillibrand have headlined fund-raisers as the industry seeks bipartisan support for its legislative initiatives. A Gillibrand spokesman declined to comment.
The push is coming as one of crypto’s most coveted goals—a Bitcoin ETF—seems close at hand. The Securities and Exchange Commission appears poised to approve at least one spot-based Bitcoin ETF, following a decision not to appeal a loss in court over the
Grayscale Bitcoin Trus
t (ticker: GBTC). Grayscale and fund companies like
BlackRock
(BLK), ARK Invest, and Fidelity Investments may soon launch spot-based Bitcoin ETFs.
What the industry wants next is for Congress to step up. After nearly a decade of legal wrangling over a Bitcoin ETF, companies don’t want to remain at the mercy of judges trying to apply decades-old securities and trading rules to crypto. Instead, the industry wants Congress to clarify or change the law, partly to shield itself from regulators who view crypto as lawless and dangerous.
At stake for companies such as
Coinbase Global
(COIN) is how core activities like trading and brokerage services will be regulated. For the broader financial industry, Congress may hold the keys to new revenue streams in products like ETFs, in trading profits on tokens, and in access to crypto through 401(k) plans, a project that Fidelity is leading.
“Lobbyists from the crypto industry are literally in lawmakers’ offices every day,” says Mark Hays, an analyst and lobbyist for Americans for Financial Reform, which is a frequent critic of the token industry.
The demise of Bankman-Fried, on trial for fraud, dried up a large chunk of the money flow. Bankman-Fried and other FTX executives gave tens of millions of dollars in campaign contributions while lobbying for legislation that would lighten oversight of the industry.
With Bankman-Fried gone, Coinbase has emerged as the driving force of crypto lobbying. Over the past year, Coinbase CEO Brian Armstrong has become a familiar presence in Washington, leading what Coinbase hopes will become a grassroots movement to push lawmakers to make crypto a priority.
In late September, Coinbase led a “Stand With Crypto Day” in Washington and helped pay to fly in nearly 50 crypto executives and investors to meet with lawmakers in the House and Senate. Company leaders met with lawmakers in both parties, including House Minority Leader Hakeem Jeffries (D., N.Y.) and House Financial Services Committee Chairman Patrick McHenry (R., N.C.), the temporary House speaker.
Crypto executives also targeted lawmakers in swing states like Texas, Florida, and Ohio, making a case for crypto as a 2024 campaign issue.
“Ultimately, we need those elected officials to understand that the crypto voter can make a difference about whether they win or lose elections,” said Haun Ventures Chief Strategy Officer Chris Lehane on a webcast recapping the event. “Once it becomes that relevant to elected officials, the system begins to move.”
What Coinbase and other companies want is a shield from the SEC, which has taken a harsh stance on crypto under Chair Gary Gensler. Coinbase is fighting an SEC lawsuit over its core business practices. Binance, the world’s largest crypto exchange, faces a similar lawsuit and is fighting it in court.
Gensler argues that most token trading on Coinbase, aside from Bitcoin, is illegal. In a worst-case scenario, the regulatory crackdown could wipe out more than a third of Coinbase’s revenue, says Berenberg Capital Markets analyst Mark Palmer. “There’s little hope in changing the stance of the majority of the commissioners at the SEC in the near term,” he says.
Rather than wait for courts to rule, Coinbase and other firms hope Congress will carve out crypto from securities rules. Executives from Coinbase and other companies have pushed for bills that would limit the SEC’s authority over tokens and establish rules for “stablecoins,” digital-dollar tokens like USDC, which Coinbase has a stake in.
Crypto firms are also trying to play defense—lobbying against bills that would impose anti-money-laundering requirements that executives say are costly or impossible to comply with in the decentralized world of blockchain-based assets and trading. Their task has gotten harder, however, with every ransomware hack or terrorist attack funded in part with tokens. Before and after attacking Israel, Hamas-linked groups solicited crypto donations.
There are some bills creeping toward the goal. The House Financial Services Committee, for instance, has advanced Coinbase-supported bills on crypto market structure and stablecoins on bipartisan votes, paving the way for a full House vote. But there hasn’t been any indication that Senate Democrats will take up the measure, or that President Joe Biden would sign a crypto bill.
With spending bills likely to be Congress’ main priority this year, and Congress shifting to election mode in 2024, a controversial crypto bill is unlikely to make progress for some time.
“The FTX collapse was a setback, but I think there is a realization among some in Congress that crypto is here to stay,” says Kristin Smith, CEO of the Blockchain Association, an industry trade group. For now, the industry may have to be content with a Bitcoin ETF, while its lobbying army keeps pushing for a bill to make it over the finish line next year.
Write to Joe Light at [email protected]
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