More On: Bitcoin
Senators and regulators explain why the $60 billion collapse of a major cryptocurrency is not the industry's Bear Stearns moment
As it confronts increased scrutiny in Washington, the burgeoning sector is raising political funds for lawmakers all throughout the country.
Crypto CEOs and investors flush with digital wealth are putting together a big-money campaign to elect a slate of crypto aficionados to Congress in this year's midterm elections, marking the industry's first substantial incursion into American politics.
Crypto enthusiasts are soliciting funds for a super PAC that plans to spend $20 million supporting candidates friendly to the industry. Coinbase, the largest cryptocurrency exchange in the United States, conducted a previously unreported fundraiser for Senate Majority Leader Charles E. Schumer (D-NY) via Zoom last week. Executives are holding events for insiders to contribute to bitcoin candidates. They are also supporting some newcomers in politics, such as elementary school teacher Aarika Rhodes, who has launched a primary campaign to Rep. Brad Sherman (D-Calif.), one of the industry's harshest opponents.
The push comes at a critical juncture. Since this point in the previous election cycle two years ago, the sector's entire market value has more than tenfold increased, reaching $2.1 trillion as of Wednesday. That rise has put the business in the crosshairs of politicians, who are now debating digital asset legislation that will influence how the industry expands both in the US and internationally. Crypto investors are racing to gain clout in Washington in order to impact the process as it unfolds.
Republican lawmakers, who have enthusiastically embraced cryptocurrency, are expected to gain from the sector's generosity, according to industry leaders. They are paying special attention to Democrats, though, because the majority party is divided on the issue.
Democratic doubters, lead by Sen. Elizabeth Warren (D-Mass. ), see cryptocurrency as a hype-driven house of cards that poses a growing threat to the financial system's stability. They claim it has done little more than enrich a small handful of speculators, enable illegal behavior, and use electricity as it needs more computing power.
However, a growing number of Democrats, including liberal freshman Rep. Ritchie Torres (D-NY), whose Bronx district is one of the poorest in the country, are making a progressive case for the technology, arguing that its decentralized networks can provide consumers with better, cheaper financial services than big banks.
Biden demands a comprehensive cryptocurrency assessment, paving the way for regulation.
The industry's outreach is already generating positive results. Schumer, for example, has not publicly stated his views on cryptocurrency. However, the top Senate Democrat told the insiders gathered on last week's fundraising call that while regulations are on the way, they should not suffocate the industry as it matures, according to two people familiar with the gathering who spoke on the condition of anonymity to discuss a private event.
According to the persons, Schumer advised the executives to present a united front and reach out to Biden administration officials as they contemplate regulations for the sector. Coinbase and Schumer representatives declined to comment.
Top cryptocurrency contributors are pouring money into Democratic primaries to support candidates they see as supporters — or, in some cases, as at least prepared to listen to the industry's argument. Web3 Forward, a super PAC that supports crypto-friendly Democrats, spent more than $1 million last month in support of Texas state Rep. Jasmine Crockett's successful primary run to succeed retiring Rep. Eddie Bernice Johnson (D-Tex.).
Crockett and her main Democratic opponent for the Dallas-area seat made no mention of cryptocurrency during their campaigns. Web3 Forward did not mention it in a television ad supporting Crockett that emphasized on her support for voting rights protections. Crockett did not respond to a comment request.
"There are a number of Democratic candidates who are pro-crypto that we want to help them on their way." "However, any desire to not be hostile is a positive thing," said Dan Matuszewski, co-founder of cryptocurrency investment firm CMS Holdings and board member of GMI PAC, a super PAC linked with Web3Forward.
The fund, whose name is a play on the phrase "going to make it," which crypto natives use to show their confidence in their idea, intends to spend $20 million supporting crypto-friendly candidates in the midterm elections. According to FTX Digital Markets CEO Ryan Salame, a board member of the fund who has committed $1 million to it, not all of it will go to Democrats.
"It's bad that this has become partisan, but it doesn't have to," he remarked. "On the Democratic side, we're hearing more 'anti' voices, but we're also hearing some very supportive ones."
In certain Democratic primaries, those opposed viewpoints are squaring up directly. Rhodes, a veteran of Andrew Yang's 2020 presidential campaign who supports universal basic income, frames her support for cryptocurrency as an issue of economic fairness. And she is using it in her campaign against Sherman, a senior member of the House Financial Services Committee who has advocated for a crackdown on technology.
"What I hear all the time in the Black community is, 'We want ownership and to earn riches,'" Rhodes remarked. "I've met people who have gotten themselves out of poverty thanks to bitcoin."
According to surveys, cryptocurrency owners are youthful and increasingly diverse. According to a summer poll conducted by NORC at the University of Chicago, 44 percent of people who purchased or traded cryptocurrencies in the previous year were non-White, 41 percent were women, and 35 percent had annual household incomes of less than $60,000. According to a Quinnipiac University poll last month, nearly a quarter of those aged 18 to 29 possess cryptocurrency, and 55% expect it will become a dominating economic force in the long run.
Because of Rhodes' stance on digital assets, her bid has caught the attention of crypto aficionados around the country. According to her campaign, she has raised over $30,000 in cryptocurrency, largely in bitcoin and Ethereum. Top industry executives have chimed in, and Rhodes announced an impending Twitter Spaces event with crypto investor Paris Hilton last week.
Sherman claims that his polling reveals that crypto is a political loser in his Los Angeles area, yet he remains undaunted in pushing for stronger sector oversight.
As the Fed considers issuing the first digital dollar, it is enlisting the help of specialists from a crypto business with a vested interest in the outcome.
Sherman stated that he will soon present legislation similar to Warren's proposal to address any gaps in Russian sanctions introduced by crypto. Warren's bill, which would give President Biden the right to impose sanctions on international exchanges that enable transactions by sanctioned Russians, was dubbed "unnecessary, overbroad, and unlawful" by the crypto research tank Coin Center. Because of the tiny scale of the asset market and the transparency of digital assets, top Biden administration officials believe crypto will not provide sanctions workarounds for targeted Russians.
However, the Warren measure has received support from ten Senate Democrats, including the majority of members on the Senate Banking Committee. "The business will comply with any law that they can't find a way to dodge," Sherman said, adding that the outcome of the sanctions bill will be a "true test" of the sector's political might because "clearly there's a lot of support for Ukraine in Congress."
As the business attempts to gain favor on Capitol Hill, it is capitalizing on the novelty of its technology to modernize the age-old practice of political financing. Participants in a December fundraiser for Senator Ron Wyden arranged by Fred Wilson, co-founder of venture capital firm Union Square Ventures, made cryptocurrency contributions.
Last summer, the Oregon Democrat who chairs the tax-writing Senate Finance Committee emerged as a crucial industry ally when he led a push to limit the scope of a crypto tax provision in the infrastructure package. Attendees were requested to scan a QR code for a Coinbase account related to Wyden's campaign when they arrived at the site, an art museum in downtown New York showcasing NFTs. They then made a contribution of half or full Ethereum, which the campaign promptly sold for US dollars and put into its account.
Thnx @RonWyden for discussing how crypto is driving US innovation— Jukay Hsu (@JukayHsu) December 13, 2021
Hope we can show how crypto helps working people and create a better society
Thnx @fredwilson & @brtmoments for hosting
What better background than @tylerxhobbs Incomplete Control 😍 https://t.co/iGehyJmhn2 pic.twitter.com/kLr5wWe2VI
According to federal documents, the Wyden campaign received roughly $30,000 in Ethereum that month. A request for response from his campaign was not returned.
According to David Pakman, managing partner at investment firm CoinFund, the sector will continue to use the approach. "The only way to understand technological items is to use them," he explained. "If we give in cryptocurrency, [candidates] will be forced to become users in order to receive them, which is a positive thing."
According to Kristin Smith, executive director of the Blockchain Association, an industry organization, the sector's efforts are beginning to bear fruit. "There's been a lot of progress over the last year, and this is no longer a scenario where Republicans are the only champions out there," she said.
Smith said her organization will establish a political action committee later this year, but in the meantime, she is hosting fundraisers for lawmakers, such as one last Friday for Rep. Joyce Beatty (D-Ohio), who leads the House Financial Services subcommittee on diversity and inclusion. "Political fundraising is a fantastic instrument for relationship development," Smith added.
People in the cryptocurrency industry appear to favor Democrats substantially in terms of personal contributions. According to a Center for Responsive Politics research, crypto workers gave more than $730,000 in direct contributions to Democratic candidates and party groups in the 2020 elections, over nine times what they gave to Republicans.
However, when it comes to persuading Democratic lawmakers, the industry confronts a "branding difficulty," according to Torres. "The progressive case for cryptocurrency is rarely, if ever, presented and rarely, if ever heard," he says.
Torres believes the technology has the potential to tackle challenges that his low-income constituents encounter when working with the traditional financial system. He cited a study that found the poorest New Yorkers pay $200 million in check-cashing fees each year, and the Dominican immigrant population in his area experiences significant expenses and delays in sending money to family abroad.
"Blockchain has the potential to establish a better, less expensive, and speedier payment system," he stated. "No one can say with certainty whether it will reach that potential." However, I am lured to the concept of radical decentralization of money and the Internet."
As crypto interests vie for political benefit in Washington, Todd Phillips, director of financial regulation and corporate governance at the liberal think tank Center for American Progress, warns policymakers to be cautious.
"It's evident that many segments of the industry desire to be exempt from the current regulatory structure," he said. "The last time we did that for specific assets, it was financial derivatives, which contributed to the financial disaster." I don't want to see anything like that happen again."
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