It’s been an ugly summer for the cryptocurrency industry everywhere except on Capitol Hill.
Congress is taking a positive view of crypto as FTX provides a huge increase in donations
Over the past two weeks, a bipartisan group of senators unveiled a proposal to hand over oversight of cryptocurrency spot markets to the Commodity Futures Trading Association, the third bipartisan bill since April that would codify a leading role for the industry’s preferred regulator.
Sens. Patrick J. Toomey (R-Pa.) and Kyrsten Sinema (D-Ariz.) joined forces to exempt crypto used for everyday purchases, like buying a sandwich, from capital gains taxes.
And that pair, along with Sens. Mark R. Warner (D-Va.) and Cynthia M. Lummis (R-Wyo.), proposed limiting the reach of a provision signed into law last year that tightened tax reporting requirements for crypto transactions. In announcing the bill, the senators included praise from eight industry representatives.
“The growing stack of bills is a signal that Washington is taking crypto seriously, and that’s a good thing for all sides,” said Sheila Warren, executive director of the Crypto Council for Innovation, an industry trade group.
Taken together, the raft of crypto-friendly legislation represents a dramatic turnaround from what the industry confronted on the Hill a year ago.
Last August, the provision that introduced stricter tax enforcement caught crypto interests flat-footed when it emerged as a source of revenue in a trillion-dollar infrastructure package. The industry, which had spent $2 million on lobbying in 2020 even as the digital asset market roughly quadrupled to more than $750 billion, mobilized what Washington is forcing it to do to soften the requirement.
Crypto lobbyists temporarily halted progress on the package, arguing that the language that applied to the industry was too broad and would stifle innovation. They lost anyway.
The defeat proved galvanizing. In the year since, crypto interests have unleashed a flood of spending to hastily assemble a political influence machine.
“The industry woke up a year ago after that fight and decided they really needed to engage and educate policymakers, and now we’re seeing the results of that broad effort,” said Aaron Cutler, a partner at the law firm Hogan Lovells and a former House Republican leadership aide.
The industry spent $8.9 million on lobbying through the first half of this year, surpassing the $7.7 million it spent all of last year, according to a new analysis from the Center for Responsive Politics. The sector now counts 191 lobbyists among its ranks, up from 50 two years ago, the analysis shows.
Crypto leaders splash out even bigger sums on campaign contributions.
So far this election cycle, they have given federal candidates more than $61 million, the center’s analysis found. Of that sum, 97 percent has come from the executives of a single company, Bahamas-headquartered crypto exchange FTX. Sam Bankman-Fried, the company’s 30-year-old CEO, has donated $38.9 million, making him the fourth-largest donor in the country. Ryan Salame, co-CEO of subsidiary FTX Digital Markets, and his wife have given an additional $15 million, making them the 10th largest donors nationally. FTX did not respond to a request for comment.
“There are a handful of people in this industry who currently wield an incredible amount of influence via almost unlimited contributions,” said Daniel Auble, a senior fellow at the Center for Responsive Politics.
FTX, like much of the industry, has focused its lobbying efforts on ensuring that the CFTC takes a lead role in overseeing digital asset markets, as opposed to the Securities and Exchange Commission.
The latest bill establishing the CFTC’s role, offered last week by Senate Agriculture Committee Chairwoman Debbie Stabenow (D-Mich.) and the panel’s top Republican, Sen. John Boozman (Ark.), would hand the agency authority over bitcoin and ethereum, which together make up about two-thirds of the cryptocurrency market.
And online exchanges for trading digital tokens, such as Coinbase, must register with the agency. The platforms
Stabenow said the debate over which agency, the CFTC or the SEC, takes the lead on crypto oversight is “not really the question, because we need both.”
The bill received broad approval from crypto interests, a fact Boozman noted during a call with reporters, saying it would give the measure momentum in the Senate. “It makes it a lot easier for the members when you don’t have friends who are all over the place,” he said.
Tyler Gellasch, executive director of the investor trade group Healthy Markets Association, said it is urgent for the sector to establish the CFTC as its top watchdog. “Getting as much as they can away from the SEC has to be the industry’s first priority, because the SEC has dozens of rules constructed over decades to protect investors,” he said. “If the SEC’s rules applied to crypto, much of the industry’s practices become illegal, and much of the profits disappear.”
But crypto insiders and observers alike agree that lawmakers have only just begun what is likely to be a lengthy process of writing an industry rulebook.
“Right now it feels like the SEC is falling behind on this and their views on this are not being heard in the legislation,” said Ian Katz, managing director of Capital Alpha Partners, a Washington policy analysis firm. “But there’s a lot of this game to be played, and it’s not over.”
Kristin Smith, executive director of the Blockchain Association, said a new congress needs to flesh out the details. For now, she said her group is happy the industry can point to three bipartisan bills, each favoring the CFTC, and crypto interests shaping the debate. “This is definitely progress,” she said, “and I don’t think it’s going to let up.”
