WASHINGTON — The cryptocurrency industry has dramatically increased its political spending ahead of the midterm elections, betting that a friendlier Congress will help shield it from a regulatory crackdown.
Crypto firms and their employees invested $73 million in the 2022 election, compared to $13 million in the 2020 cycle, according to research group OpenSecrets, which tracks political donations. The industry also spent $15 million on lobbying in the first nine months of this year, more than in the previous eight years combined.
The push comes amid falling cryptocurrency prices and heightened scrutiny from regulators who say crypto issuers and lending platforms generally fail to follow laws designed to protect investors. and prevent money laundering.
The Securities and Exchange Commission is investigating a number of trading platforms, including Coinbase Global Inc.,
for operating an unregistered stock exchange, and is filing a lawsuit against Ripple Labs Inc., the backer of a popular token. He has filed nearly 100 enforcement actions against crypto entities and recently doubled the size of his crypto-focused team.
“We will … continue to be a cop on the spot,” SEC Chairman Gary Gensler said in October. “The law is quite clear.
The industry solution: Persuade Congress to change the law.
Amid lobbying pressure, members of Congress from both parties have introduced bills that the crypto industry would like to see passed. One would write exemptions into securities laws and tax laws for cryptocurrencies. Another would hand over oversight of the two biggest tokens, bitcoin and ether, to a regulator who would have to write rules from scratch.
“These midterm elections are the most important elections for this crypto community,” said Hermine Wong, director of policy at Coinbase, the largest US crypto-trading platform. “We believe lawmakers coming into this cycle will finally be able to write legislation to govern this space.”
Wealthy investors and big business have long used lobbyists and campaign donations to gain influence in Washington. What sets the crypto industry apart, observers say, is that the stakes are existential. This has led to rapid growth in political spending and unusually aggressive strategies to influence lawmakers.
Crypto’s political contributions ahead of the midterms exceed those of the defense and automotive industries combined, according to OpenSecrets, though they still lag behind some other sectors, such as private equity. Official campaigns and outside spending groups that received the money used it to buy TV, radio and digital ads, mail out brochures, and provide signage, voting and texting services.
The FTX Trading Ltd trading platform. became the third-largest source of 2022 campaign contributions after Democratic megadonor George Soros’ company and cardboard box maker Uline.
A token price boom last year allowed the crypto industry to set aside large amounts of money for political activities. In just over a decade, cryptocurrencies grew from a concept to a $3 trillion market in November 2021, before falling below $1 trillion this year.
By helping to get enough crypto-friendly lawmakers elected in November, the industry hopes to push through finish-line-friendly legislation quickly.
Through its app, Coinbase has sent push notifications encouraging users to register to vote, and is in the process of rolling out a dashboard on its platform that rates US senators and representatives based on their crypto sentiment. While such strategies are often used by interest groups like the National Rifle Association to attract single-issue voters, they are rare for individual companies.
“It’s life or death, and so they’re ramping up to a level of aggression that matches the fact that they’re in a legal corner,” said Jeff Hauser, director of the Revolving Door Project, a group that advocates for less corporate influence. on politics.
A crypto-focused group, GMI PAC Inc., has raised $11.5 million from crypto investors, including FTX co-founder Sam Bankman-Fried, stablecoin issuer Circle Internet Financial Inc., and venture capital firm Andreessen Horowitz. GMI said 15 of the 18 congressional candidates it backed in the primary election won their races. He has focused his spending on primaries in congressional districts without an incumbent and where one party or the other is heavily favored to win in November.
Contributions make a bigger difference in these races, where overall expenses tend to be lower than contested races.
“You’re not just helping one candidate, you’re making a statement to everyone,” said Rep. Brad Sherman (D., Calif.), who has pushed a hard line on crypto. “The vast majority of us don’t face a well-funded primary opponent, and anyone who faces a well-funded primary opponent could lose.”
Not all spending has been effective. A separate group funded primarily by Mr. Bankman-Fried has spent more than $11 million supporting an Oregon political novice who lost his primary.
Some sitting lawmakers have also received crypto-related donations.
Senate Majority Leader Chuck Schumer (D., NY) received more than $100,000 from individuals from Coinbase, Digital Currency Group and Ripple. Sen. Debbie Stabenow (D., Mich.) and Sen. John Boozman (R., Ark.) — leaders of the Senate Agriculture Committee — who recently co-sponsored legislation that won industry support from crypto, each received more than $20,000 from FTX and Ripple employees.
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Sen. Tim Scott (R., SC), who would chair the Senate Banking Committee if Republicans won control, received more than $20,000 from executives at crypto-investment firm Paradigm. Rep. Patrick McHenry (R., NC), who would lead the House Financial Services Committee if Republicans win this chamber, received nearly $50,000 from people at Coinbase, Ripple, Bitwise Asset Management and Blockchain Capital.
A spokesperson for Boozman declined to comment on the donations, but said the senator had called for more consumer protections in crypto. Representatives of Messrs. McHenry and Scott declined to comment. Mr. Schumer and Ms. Stabenow did not respond to repeated requests for comment.
Mr. Bankman-Fried, a billionaire, said he travels to Washington at least once a month, occasionally attending industry-sponsored happy hours and mingling with young congressional aides.
“It’s all happening at once,” Bankman-Fried said at an October event at the Institute of International Finance in downtown Washington. “We kind of run all over town.”
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