After years of growing in its own corner, the US cryptocurrency industry is now trying to normalize itself to become a part of the economy like any other. However, across the Atlantic, being an industry like the others means putting your hand in your pocket to court the decision-makers in Washington.
A rule from which the cryptocurrency industry does not intend to derogate, as evidenced by the considerable funds invested this year in the context of the mid-term elections.
$73 million invested in Midterms
Cryptocurrency companies and their employees spent a total of $73 million on the campaign trail, according to data collected by OpenSecrets, a nonprofit that tracks political campaign finance and lobbying spending in states. -United. This spending is greater than that of the defense and automotive industries combined, according to OpenSecrets. They also greatly exceed the 13 million deployed by the crypto industry during the 2020 presidential election.
These 73 million were then used by the campaigns of the various candidates to buy advertisements on radio, television and on the internet, to distribute leaflets, install billboards and send text messages.
These efforts are not just about the Midterms campaign. The cryptocurrency industry also spent a total of fifteen million dollars on lobbying in the first nine months of the year, more than in the previous eight years.
The FTX platform, before exploding in mid-flight, thus alone became the third largest contributor to the Democratic campaign, behind George Soros and the industrial company Uline.
Its rival Coinbase spent $160,000 on lobbying in the first half, and recruited two additional lobbyists, bringing its total to nine. In the weeks preceding the election, the company, via its application, also sent notifications to its users to encourage them to vote, and to rate the various candidates according to their feelings towards cryptocurrencies.
Others, like Silicon Valley investment fund Andreessen Horowitz, which invested in Bitcoin as early as 2013, recently launched a $2.2 billion fund specializing in cryptocurrencies, for which it recruited several big fish. , including a former executive of the SEC, the policeman of the American stock market, as well as a former member of the Treasury Department. The investment fund has also issued its own proposals to better regulate Web3.
Cryptos scrutinized by the authorities
By sending well-intentioned cryptocurrency politicians to Washington, the industry naturally intends to influence the legislative landscape in a way that is favorable to it. These efforts come as the cryptocurrency industry, after several relatively quiet years, has now been scrutinized by the regulator, which is increasing its investigations and preparing the implementation of laws to regulate this new economy more closely.
The SEC has thus doubled the size of its team responsible for supervising cryptocurrencies and opened around a hundred investigations into several companies specializing in them, including the Coinbase platform, which it accuses of offering unregistered securities for trading ( or “securities” according to US regulatory taxonomy). But also on the Bored Apes Yacht Club, the famous collection of monkey paintings sold in the form of NFTs, which the SEC considers to be financial instruments, which should therefore comply with the corresponding regulations. FTX is further under separate investigation by the SEC, Department of Justice, and New York State following its implosion and suspicions of massive fraud surrounding it.
Will the US cryptocurrency market soon be better regulated?
At the same time, the American executive seems determined to beef up its legislative arsenal to regulate cryptocurrencies, at a time when final cosmetic touches are being made to the European MiCA regulation on the other side of the Atlantic. In September, the Biden administration published a series of reports full of ideas for better regulating the market, combating fraud, and experimenting with the creation of a digital dollar. The American regulator must also soon publish a roadmap for the supervision of stablecoins.
Democratic and Republican lawmakers have also launched bills in Congress, which many cryptocurrency industry professionals hope will see the light of day. One of them, the Digital Commodities Consumer Protection Act (DCCPA) proposes, for example, to relax the rules to which the industry will be subject in terms of tax and security compared to the rest of the financial sphere.
Another proposed law suggests treating decentralized cryptocurrencies, like bitcoin and ether, two of the major digital currencies, the same as gold and silver. The main consequence of these two laws would be to place at least part of the cryptocurrencies under the control of the Commodity Futures Trading Commission (CFTC, in charge of the regulation of stock exchanges, where raw materials are traded) and therefore outside of that of the Commodity Futures Trading Commission. SEC, where the director of the latter, Gary Gensler, does not miss an opportunity to recall that the regulation of cryptos must on the contrary fall within the competence of his agency. This change would imply a lower level of regulation.
In such a legislatively charged context, cryptocurrency companies have every interest in placing their pawns in Washington. ” This is a critical moment for the industry. For too long, the absence of regulation has allowed bad actors to thrive. It’s time for the government to put in place measures that protect the public while allowing the United States to remain one of the champions of this technology. Says, on condition of anonymity, an executive working for a large American cryptocurrency company. She expects lobbying spending to continue to rise as the 2024 presidential election approaches.
A series of booster shots
Awareness of the imperative to mobilize in order to win the favors of power took place in several stages. First, in 2019, there was the outcry over Facebook’s stablecoin project, Libra (since abandoned). Then, at the very end of Donald Trump’s term, Treasury Secretary Steve Mnuchin’s proposal to end most anonymous cryptocurrency transfers.
Or the inclusion, in Joe Biden’s Infrastructure Act, of a measure providing for the levying of taxes on cryptocurrencies by forcing “brokers” (a term that may include trading platforms, but also minors and even developers working on digital wallets) to report transactions to the IRS, the US tax department. Measure that the industry tried to have withdrawn by using its influence in Washington, without success. Although lost, this battle served to motivate the troops in anticipation of the midterm elections.
A mobilization that seems to have at least partially borne fruit. Thus, the influence group GMI PAC Inc., co-founded by Sam Bankman-Fried, the creator of the late FTX, Circle Internet Financial, a creator of stablecoins, and Andreessen Horowitz, claims that 15 of the 18 candidates on which it had bet for the Midterms were elected.
Notice of storm
Naturally, FTX’s setbacks are very bad news for the industry. At a time when the latter is striving to put on a respectable face with the American authorities, the fact that one of its principal actors and ambassadors appears more and more like the architect of a Ponzi scheme, worthy of the great hours of Bernard Madoff, is undoubtedly one of the worst things that could happen.
Sam Bankman-Fried was indeed one of the industry’s most zealous lobbyists, self-reportedly traveling to the capital at least once a month to skim cocktails and make connections. Nicknamed ” the prince of cryptos “, he said he wanted to invest a billion dollars in the presidential election of 2024. He was also one of the main supporters of the DCCPA, and several industry professionals told us that this law could suffer greatly from the fall of the prince cryptos.
But the FTX affair could also give a boost to attempts to regulate the market. ” Recent events […] demonstrate that we need clear rules regarding digital asset exchanges in the United States “Said Republican Senator from Wyoming Cynthia Lummis, a convinced promoter of cryptocurrencies and sponsor of one of the laws aimed at regulating them.
The question of whether or not these regulations will correspond to the industry’s expectations remains unresolved. Cryptocurrencies being one of the few bipartisan subjects in the United States, the Republicans’ takeover of the House of Representatives does not dampen any hope of regulation for the next two years, quite the contrary. This could be one of the few areas where Joe Biden, now facing a divided Congress, could easily drive meaningful reform.