It’s been an ugly summer for the cryptocurrency industry everywhere but on Capitol Hill.
In just the last two weeks, a bipartisan group of senators unveiled a proposal to hand oversight of cryptocurrency spot markets to the Commodity Futures Trading Commission, 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.) teamed up to pitch exempting 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 on crypto transactions. In announcing the bill, the senators included praise from eight industry representatives.
“The mounting stack of legislative proposals is a signal that Washington is taking crypto seriously, and that is a good thing for all sides,” said Sheila Warren, CEO of the Crypto Council for Innovation, an industry trade group.
Taken together, the flurry of crypto-friendly legislation represents a dramatic turnaround from what the industry confronted on the Hill a year ago.
Last August, the provision imposing stricter tax enforcement caught crypto interests flat-footed when it popped up as a revenue source 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 forces it had to soften the requirement.
Crypto lobbyists temporarily halted progress on the package, arguing the language that applied to the industry was overly 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 assemble a political influence machine in a hurry.
“The industry woke up a year ago after that fight and decided they really needed to get engaged and educate policymakers, and now we’re seeing the results of those broad efforts,” said Aaron Cutler, partner at law firm Hogan Lovells and a former House Republican leadership aide.
The industry shelled out $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 by the Center for Responsive Politics. The sector now counts 191 lobbyists among its ranks, up from 50 two years ago, the analysis shows.
Crypto executives are splashing 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 leaders of a single company, the Bahamas-headquartered crypto exchange FTX. Sam Bankman-Fried, the company’s 30-year-old chief executive, has donated $38.9 million, making him the fourth largest donor in the country. Ryan Salame, co-CEO of the subsidiary FTX Digital Markets, and his wife have given another $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 currently exerting an incredible amount of influence via nearly unlimited contributions,” said Daniel Auble, a senior researcher with the Center for Responsive Politics.
FTX, like much of the industry, has focused its lobbying efforts on ensuring the CFTC takes a leading role overseeing digital asset markets, as opposed to the Securities and Exchange Commission.
The latest bill enshrining the CFTC’s role, offered last week by Senate Agriculture Committee Chair 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 roughly two-thirds of the cryptocurrency market.
And online exchanges for trading digital tokens, such as Coinbase, would have to register with the agency.
Stabenow said the debate over which agency, the CFTC or the SEC, takes the lead on crypto oversight is “really not the question, because we need both.”
The bill drew wide approval from crypto interests, a fact Boozman noted on a call with reporters, saying it would give the measure momentum in the Senate. “It makes it a lot easier on 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 there is urgency for the sector to establish the CFTC as its top watchdog. “Pulling as much as they can away from the SEC has to be the industry’s number one priority, because the SEC has dozens of rules constructed over decades to protect investors,” he said. “If the SEC’s rules applied to crypto, a lot of the industry’s practices become illegal, and a lot of the profits disappear.”
But crypto insiders and observers alike agree lawmakers have only just begun what will likely be a drawn-out process to write an industry rule book.
“Right now, it does feel like the SEC is falling behind on this, and their view on this is not getting heard in legislation,” said Ian Katz, managing director of Capital Alpha Partners, a Washington policy analysis firm. “But there’s a lot of this game that needs to be played, and it’s not over.”
Kristin Smith, executive director of the Blockchain Association, said a new Congress will need to hammer out the details. For now, she said her group is excited that the industry can point to three bipartisan bills, each of which favors the CFTC, and crypto interests are shaping the debate. “This is definitely progress,” she said, “and I don’t think it’s going to let up.”