What’s next for political crypto-donations
On January 25, the Select Committee introduced a bill to the Kansas House of Representatives that aimed to limit political donations via crypto to $100. Regardless of the success of this legislative initiative, the state of Kansas will not be the first jurisdiction to target anonymous donations. From authoritarian nations like Russia or China to electoral democracies like Ireland or Canada, recent attempts to ban crypto donations to politicians can be found all over the world.
The opponents of crypto may have a strong point – it is difficult to imagine a healthy democracy where large sums of untraceable money flow between the candidates. But the problem of “dark money” and tools to distribute it around the political system existed long before the advent of pseudonymous cryptoassets. The industry isn’t having the best of moments right now, but the topic of campaign donations in crypto remains a relatively safe space for innovation. Could that change before the next election period?
2014 rule and a cap of $6,600
The first time the US Federal Election Commission (FEC), the independent agency responsible for enforcing election law, approached the topic of crypto donations was in 2014. Back then, digital assets were not nearly as big of a problem, and the price of one Bitcoin (BTC) hovered around the $300 mark. Perhaps that’s why the FEC took the new problem lightly. It recognized the ability to donate in Bitcoin (and only Bitcoin), but qualified it under the category of “in-kind contributions” along with such non-monetary promotional activities as giving a free consultation or a concert performance.
Despite its apparent inclusion, Bitcoin donations have been deemed to remain non-anonymous and limited to the same brand as direct cash donations. There is a basic limit on such donations that grows with inflation from one election cycle to another – by 2024 it will be $3,300 for the primary and the same amount for the general election. The “in-kind contribution” status also prevented activists from using received Bitcoin directly – they must “liquidate” it and then deposit the money into their accounts.
But there is a caveat within the American political system. While the amount of personal donations may be limited, one can always support Political Action Committees (PACs) by donating up to $41,300 annually. There are also Super PACs, which have no limit whatsoever. Technically, Super PACS cannot make any direct contributions, but they can spend unlimited amounts of funds on marketing support for their candidates regardless of their campaigns.
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There is at least one successful instance – BitPAC – specifically dedicated to promoting cryptocurrency and blockchain technology. It has accepted donations of Bitcoin, Ether (ETH), and Litecoin (LTC) and used those donations to support US presidential candidates, congressional candidates, Super PACs, and grassroots organizations.
The FEC has not issued any major statements on crypto donations since 2014, even though Bitcoin’s total capitalization has skyrocketed since then, not to mention the issuance and adoption of hundreds of other digital currencies.
There is also a major exception for non-fungible tokens (NFT). In 2022, the FEC deemed it “permissible” to send NFTs to political campaign contributors without violating corporate contribution rules. Earlier in 2019, the FEC approved an ERC-20 token issued by Omar Reyes to use in an incentive program for his congressional campaign. The agency decided that the symbols should be souvenirs with no monetary value.
Kansas or California?
Over the past decade, the separate states have largely agreed with the FEC’s vague recommendations on crypto donations. It was only South Carolina, North Carolina and Kansas where legislators decided not to give money in crypto. Early on, crypto-donations began to spread slowly with the help of enthusiastic politicians such as Rand Paul, Austin Petersen or Jared Polis.
But in the 2020s, when one in five Americans has dabbled in crypto to some degree, and the industry itself became something of a problem for global regulators, the mood swung in a different direction. In April 2022, Ireland became the first European country to officially ban political donations in crypto. As Darragh O’Brien, Ireland’s Minister for Housing, Local Government and Heritage, explained to reporters at the time, the law aimed to protect Ireland’s democratic system, “given the escalating threat of cyber warfare directed at free countries.”
This year, Kansas began debating political donations in the state legislature. Local House Bill 2167 sets a cap of $100 for any political candidate in the state’s primary or general election. Also, even for donations under $100, the recipient will have to “immediately convert” the crypto to US dollars, not use the crypto for expenses, and not keep the funds.
However, there is reason for optimism. After a four-year ban, candidates for state and local offices in California are once again allowed to accept cryptocurrency donations. The ban was lifted by the state’s Fair Political Practices Commission (FPPC) last year after it considered three main strategies regarding crypto donations.
The option of a $100 cap, like in Kansas, was also on the table, but the FPPC decided to go with the original FEC prescription and treat crypto donations as in-kind contributions. The Golden State joined 12 other states where political donations of digital assets are explicitly allowed.
Crypto donations in 2024
Why, in all these years, when the landscape of the crypto industry has been constantly changing, has the FEC not made any significant updates? First, the 2014 ruling was finalized only in 2019, so, with all caveats, it is not that old, as Martin Dobelle, co-founder and CEO of Engage Labs, told Cointelegraph. He said it “has been a good rule and has made it possible to make cryptopolitical donations successfully.”
Anthony Georgiades, co-founder of Pastel Network, considers the FEC’s pace to be fully consistent with general crypto regulation in the United States. Since crypto is still a very new industry compared to traditional finance, the FEC is most likely unsure of how to monitor crypto donations, making it difficult to enforce any regulations. He further stated that the time for some updates on crypto donations has come, telling Cointelegraph:
“With all the recent turbulence in crypto, regulators now want to ensure there is more clarity and transparency in the industry, and we will see more regulation introduced as the next election cycle begins.”
Terrence Yang, CEO of Swan Bitcoin, is not so optimistic about the chances of getting the updates from the FEC by the next election cycle. Speaking to Cointelegraph, he points out the polarized nature of the current political configuration.
“Because of the divided Congress, it may be harder than you think to get legislation passed. It is unlikely that any crypto-choice legislation will be added to a bill to pass both houses of Congress and be signed by the president,” he said.
Given the turmoil in the markets caused by the crypto winter of 2022, there is always a chance that new crypto donation rules will not be friendly to the market. But on the other hand, the field of campaign donations remains completely free of public scandals involving crypto.
Of course, that was the case with Sam Bankman-Fried and the $40 million he donated to both political parties in the United States and tried to come back later. But, as with the lobbying of the crypto industry in general, it technically has nothing to do with the topic of campaign donations in crypto. “In fact, there is a very compelling case that political finance offers a real use case for blockchain technology, which can be leveraged to significantly improve transparency and traceability,” stated Dobelle.
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“There is good reason to be optimistic about the future regulation of crypto-donations,” Georgiades believes. It takes time for knowledge to be developed and disseminated to regulators; the example of internet regulation, virtually absent in the 1990s, is still fresh.
It is difficult to imagine a flawless implementation of regulations, but over time the understanding of the technology will grow; regulators will become more adept and recognize where crypto has the potential to impact campaign fundraising and where risk needs to be mitigated.
“It’s just going to take patience and a lot of education to get there,” Georgiades concluded.
