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Crypto industry dives into the midterms, raising millions to court Democrats

The surging sector is raising political cash for lawmakers across the map as it faces mounting scrutiny in Washington

Senate Majority Leader Charles E. Schumer (D-N.Y.) is one of the latest Democrats to benefit from a crypto industry push to win support in the party. (Oliver Contreras for The Washington Post)
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Crypto executives and investors flush with digital wealth are assembling a big-money effort to elect a slate of crypto enthusiasts to Congress in this year’s midterm elections, the industry’s first significant foray into American politics.

Crypto interests are raising money for a super PAC that aims to spend $20 million promoting candidates friendly toward the sector. Coinbase, the largest U.S.-based crypto exchange, hosted a previously unreported fundraiser for Senate Majority Leader Charles E. Schumer (D-N.Y.) over a Zoom call last week. Executives are organizing events for insiders to contribute to candidates in cryptocurrency. And they are backing some upstart pols, including elementary school teacher Aarika Rhodes, who has launched a primary challenge to Rep. Brad Sherman (D-Calif.), one of the industry’s most outspoken critics.

The push comes at a high-stakes moment. The sector has leaped more than tenfold in total market value since this point in the last election cycle two years ago, topping $2.1 trillion as of Wednesday. That growth has put the industry in the crosshairs of policymakers, now considering rules for digital assets that will determine how the industry evolves both in the United States and abroad. Crypto interests are racing to build influence in Washington in a bid to shape the process as it unfolds.

Industry leaders say Republican politicians, who have widely embraced crypto, will benefit from the sector’s largesse. But they are devoting special attention to Democrats, since the majority party is divided on the matter.

Democratic skeptics, led by Sen. Elizabeth Warren (D-Mass.), criticize crypto as a hype-driven house of cards that presents a growing threat to the stability of the financial system. They say it has done little besides enrich a small group of speculators, facilitate illicit activity and gobble up electricity as it demands more computing power.

But a growing number of Democrats — including liberal freshman Rep. Ritchie Torres (D-N.Y.), whose Bronx district is one of the poorest in the country — are making a progressive case for the technology, arguing that its decentralized networks could give consumers better, cheaper financial services than those offered by big banks.

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The industry’s outreach is already yielding some encouragement. Schumer, for one, has not publicly spelled out a position on cryptocurrencies. But the top Senate Democrat told the insiders gathered on last week’s fundraising call that while regulations are coming, they should not smother the industry as it matures, two people familiar with the gathering said on the condition of anonymity to discuss a private event.

Schumer offered the executives some advice, telling them to present a united front and reach out to Biden administration officials as they consider rules for the sector, the people said. Spokespeople for Coinbase and Schumer declined to comment.

Top crypto donors are jumping into Democratic primaries to promote candidates they view as allies — or, in some cases, at least willing to consider the industry’s pitch. Web3 Forward, a super PAC supporting crypto-friendly Democrats, spent more than $1 million last month backing Texas state Rep. Jasmine Crockett in her successful primary bid to replace retiring Rep. Eddie Bernice Johnson (D-Tex.).

Neither Crockett nor her chief Democratic rival for the Dallas-based seat expressed views on crypto in their campaigns. And Web3 Forward did not mention it in a television ad backing Crockett that instead focused on her support for voting rights protections. Crockett did not respond to a request for comment.

“There are a lot of Democratic candidates who are pro-crypto that we want to foster in their trajectory. But any willingness to not be hostile is a good thing,” said Dan Matuszewski, co-founder of crypto investment firm CMS Holdings and a board member of GMI PAC, a super PAC affiliated with Web3Forward.

The fund — whose name is a reference to “gonna make it,” jargon that crypto natives use to express optimism in their project — plans to spend $20 million boosting crypto-friendly candidates in the midterms. Not all of it will go to Democrats, said FTX Digital Markets Co-CEO Ryan Salame, a board member of the fund who has contributed $1 million to it.

“It’s unfortunate that this has fallen on party lines, but it doesn’t need to,” he said. “We’re seeing stronger ‘anti’ voices on the Democratic side, but we’re also seeing some very positive voices, as well.”

Those opposing views are squaring off in some Democratic primaries. Rhodes, a veteran of Andrew Yang’s 2020 presidential campaign who is echoing his call for universal basic income, frames her support for crypto as a matter of economic justice. And she is featuring it in her challenge against Sherman, a senior member of the House Financial Services Committee who has called for cracking down on the technology.

“What I hear in the Black community all the time is, ‘We want ownership and to acquire wealth,’ ” Rhodes said. “I’ve met people who’ve pulled themselves out of poverty because of bitcoin.”

Surveys show that crypto owners skew young and increasingly diverse. A poll over the summer by NORC at the University of Chicago found that 44 percent of those who bought or traded cryptocurrencies in the past year were non-White, 41 percent were women and 35 percent had annual household incomes of less than $60,000. Nearly a quarter of those 18 to 29 years old own crypto, and 55 percent of them believe crypto will become a dominant economic force in the long-term, according to a Quinnipiac University poll this month.

Rhodes’s position on digital assets has put her bid on the radar of crypto enthusiasts across the country. Her campaign said she has raised more than $30,000 in crypto, mostly bitcoin and Ethereum. Top industry executives have pitched in; and last week, Rhodes teased an upcoming Twitter Spaces event with Paris Hilton, a crypto investor.

Sherman said his polling shows crypto is a political loser in his Los Angeles district, and he remains undeterred in pushing tougher oversight of the industry.

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Sherman said he will soon introduce a bill that matches a Warren proposal addressing potential loopholes in Russian sanctions opened by crypto. Crypto think tank Coin Center called Warren’s bill, which would give President Biden the authority to impose penalties on foreign exchanges that allow transactions by sanctioned Russians, “unnecessary, overbroad, and unconstitutional.” And top Biden administration officials said crypto is unlikely to present sanctions workarounds for targeted Russians, because of the relatively small size of the asset market and traceability of digital assets.

But the Warren bill has drawn support from 10 Senate Democrats, including most of those on the Senate Banking Committee. “The industry will comply with any law they can’t figure out a way to avoid,” Sherman said, adding that the fate of the sanctions bill will provide a “real test” of the industry’s political muscle, since “obviously there’s a lot of support for Ukraine in Congress.”

As the industry tries to win friends on Capitol Hill, it is leaning into the novelty of its tech to update political fundraising. Participants in a December fundraiser for Sen. Ron Wyden (Ore.) organized by Fred Wilson, co-founder of venture capital firm Union Square Ventures, contributed in crypto.

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The Democrat, who chairs the tax-writing Senate Finance Committee, emerged as a key industry ally last summer when he led an effort to limit the scope of a crypto tax provision in the infrastructure bill. When attendees arrived at the venue — an art gallery in downtown New York that showcases non-fungible tokens — they were asked to scan a QR code for a Coinbase account linked to Wyden’s campaign. They then contributed either a half or full Ethereum, which the campaign immediately sold for U.S. dollars and deposited into its account.

The Wyden campaign collected nearly $30,000 in Ethereum that month, federal records show. His campaign did not respond to a request for comment.

David Pakman, managing partner at the investment firm CoinFund, said the industry will continue to employ the model. “The only way to understand technology products is to use them,” he said. “If we contribute in crypto, [candidates] are forced to become users to receive them, and that’s a good thing.”

Kristin Smith, executive director of the Blockchain Association, an industry lobby, said the sector’s efforts are starting to pay off. “There’s been a lot of progress over the past year, and this is no longer a situation where the only champions out there are Republicans,” she said.

Smith said her group will launch a political action committee later this year, but she is organizing fundraisers for lawmakers in the meantime, including an event last Friday for Rep. Joyce Beatty (D-Ohio), who chairs the House Financial Services subcommittee on diversity and inclusion. “Political fundraising is a wonderful tool for building relationships,” Smith said.

People working in the crypto industry appear to favor Democrats heavily with their personal contributions. In the 2020 elections, crypto workers gave more than $730,000 in direct contributions to Democratic candidates and party committees, nearly nine times what they donated to Republicans, according to an analysis by the Center for Responsive Politics.

Still, when it comes to convincing Democratic policymakers, the industry faces a “branding challenge,” Torres said. “The progressive case for crypto is rarely if ever made and rarely if ever heard.”

Torres said he sees potential for the technology to solve problems his lowest-income constituents face dealing with the traditional financial system. He pointed to a study showing the poorest New Yorkers pay $200 million a year in check-cashing fees, and the Dominican immigrant population in his district faces high costs and delays sending money to family abroad.

“Blockchain has the potential to create a better, cheaper and faster payment system,” he said. “Whether it realizes that potential, no one can answer with certainty. But I’m drawn to the vision of radically decentralizing finance and the Internet.”

As crypto interests press for advantage in Washington, Todd Phillips, director of financial regulation and corporate governance at the liberal think tank Center for American Progress, said policymakers need to be wary.

“It’s clear many parts of the industry want to be carved out of the existing regulatory structure,” he said. “The last time we did that for specific assets, it was financial derivatives, and it helped cause the financial crisis. I really don’t want to see that happen again.”