Regulation
As Cryptocurrencies Flood Washington, Congress Considers Softer 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 government watchdog organizations. money in politics. The lobbying campaign helped push the House on Wednesday to advance the first major cryptocurrency bill to clear either chamber of Congress.
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The bill would move some federal oversight of crypto from the Securities and Exchange Commission, an aggressive regulator, to the Commodity Futures Trading Commission, which some critics view as weaker, more industry-friendly and underfunded. Coinbase, Ripple and advocacy groups including the Blockchain Association and the Crypto Center for Innovation helped House Republicans craft the legislative approach, then aggressively canvassed the Capitol to rally votes in favor of its adoption.
Industry executives, investors and workers — along with their companies’ official political operations — also contributed nearly $90 million to campaigns and other groups over the past two elections, according to the analysis. They supported the architects and advocates of the House bill, including Rep. Patrick T. McHenry, a North Carolina Republican who chairs the House Financial Services Committee. And the industry funded a trio of powerful new super PACs, which flooded the airwaves with TV ads touting friendly candidates from both parties, often without mentioning crypto at all.
Spending estimates are understated, in part because federal campaign finance laws do not require companies and executives to disclose their donations to certain nonprofit groups. Nonetheless, the numbers suggest that the crypto industry now belongs to a category of Beltway powers that routinely shell out massive sums to influence policymaking.
Speaking to reporters a day before House passage, McHenry acknowledged the myriad ways in which cryptocurrency companies are “maturing” in Washington, a dynamic he described as key to crafting the first draft of the bill. major crypto legislation from Congress.
“It’s a benefit for this vote,” McHenry said of raising industry awareness, “and for policymakers to realize it.”
Coinbase declined to make an executive available for an interview. Brad Garlinghouse, chief executive of Ripple, said crypto has stepped up politically to “provide perspective on all things constructive and positive in this industry.”
The Senate has not said whether it plans to consider the bill this year. The White House said last week that it “opposed” the proposal, but did not explicitly threaten to veto it. Other leading federal watchdogs have made more glaring calls in recent days, warning that the House crypto bill could unleash new dangers for the economy.
“The crypto industry’s record of failures, frauds and bankruptcies is not because we don’t have rules or because the rules aren’t clear,” the president said. the SEC, Gary Gensler, in a press release. “That’s because many in the crypto industry don’t play by the rules.”
The rapid rise of the industry in Washington is striking, two years after the catastrophic failure of FTX, a marketplace where people could buy and sell virtual currencies – known as an exchange – that was the third largest platform in the world and was once valued at $32 billion. .
In March, a federal court sentenced the company’s once-omnipresent executive, Sam Bankman-Fried, to 25 years in prison, finding him guilty of numerous crimes stemming from his misuse of customer deposits for risky bets and donations illegal policies. His actions ultimately wiped out FTX, leaving the company bankrupt and customers scrambling for refunds.
After the FTX scandal, many lawmakers sounded the alarm that a broader crypto collapse could jeopardize the economy as a whole. But those warnings only accelerated the political shift already underway in the industry, which has quadrupled the number of registered lobbyists in Washington from 58 in 2020 to more than 270 at the end of last year. according to federal data.
“There needs to be 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 during the post-FTX collapse that the crypto industry was in the penalty box.”
On Capitol Hill, the industry was specifically seeking “regulatory clarity,” primarily through legislation that would give oversight responsibilities to the Commodities Trade Commission, a half-century-old agency meant to originally oversee corn and grain futures. Many crypto supporters viewed it as a friendly regulator, at least compared to the SEC, which in recent years has taken 170 enforcement actions against digital currencies and trading platforms, including Binance, Coinbase and Ripple.
In the summer, House Republicans responded with the bill known as FIT21, a highly complex proposal that would allow cryptocurrency companies to be regulated primarily by the CFTC.
The measure would also relax some of the financial disclosures crypto companies must provide to their customers while limiting cases where investors could sue for abuse. Importantly, the bill would provide no new funding for the Commodities Commission, despite its recent calls to Congress for a larger budget. The commission did not respond to a request for comment.
Many cryptocurrency lobbyists and advocates acknowledge having been closely involved in drafting the proposal. Sheila Warren, executive director of the Crypto Council for Innovation, said last week that her group had been “working” on some provisions “a year and a half or two years ago.” The group is backed by Coinbase and investors including Andreessen Horowitz, a major Silicon Valley venture capital firm.
The industry’s proximity to the legislation alarmed consumer watchdogs, which argued the House threatened to create major regulatory loopholes.
Lawmakers nevertheless approved the measure in a bipartisan vote of 279-136 on 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 nation’s largest banks from underwriting subprime mortgages. About 6 million people lost their homes in the resulting financial crisis and recession, while the U.S. government spent billions of dollars to pull the country out of the rubble.
“Before the crash of 2008, when I talked about the inadequacy of our oversight of the banks, I kept saying: Everything seems good today, but it will end badly,” Massachusetts Democratic Senator Elizabeth Warren said in a recent interview. “I feel that today. This may seem okay for now, but inviting crypto deeper into our economy without putting adequate regulations in place will end badly.
Cryptocurrency companies strongly resist these comparisons, arguing that members of Congress simply don’t understand this new, rapidly evolving industry. To further solidify their support on Capitol Hill, they have set their sights on this year’s elections. Garlinghouse, the Ripple CEO, cited “Elizabeth Warren’s megaphone” as the reason for the industry’s massive campaign spending.