In a major development for crypto enthusiasts, the long-anticipated Bitcoin exchange-traded fund (ETF) appears to be on the cusp of approval. The crypto industry, eager to cement its presence in the mainstream financial landscape, is now turning its attention to Congress for much-needed support.
Two recent events serve as prime examples of the growing convergence between cryptocurrency and Washington, D.C. In September, Senator Kirsten Gillibrand of New York hosted a campaign fundraiser in Manhattan. During the event, she expressed optimism about legislative efforts in Congress aimed at defining how cryptocurrency should be regulated. Attendees and a publicly available invitation from Barron’s revealed that access to the event, held in the SoHo apartment of a crypto executive, ranged from $500 to $21,600 per head.
The preceding day, numerous crypto industry leaders organized a fundraiser for Republican presidential candidate Vivek Ramaswamy, who was participating in a cryptocurrency-focused conference in New York. The event’s attendance costs varied from $1,000 for a regular ticket to $6,600 for co-host status. The invitation for the fundraiser stressed the importance of demonstrating support to make crypto a prominent campaign issue.
The crypto sector and Washington, D.C. are now more intertwined than ever. In the second quarter, crypto firms collectively spent nearly $6.6 million on lobbying efforts, marking a record high for any quarter, according to federal records compiled by OpenSecrets.org. Since 2020, the industry has invested over $45 million in lobbying activities. Additionally, crypto company employees, with FTX and its founder, Sam Bankman-Fried, leading the charge, have contributed $98 million to congressional lawmakers’ campaigns.
Prominent figures in Congress, both in the House and Senate, have received campaign contributions from crypto executives. While Republicans tend to exhibit more crypto-friendly stances, even Democrats like Senator Gillibrand have headlined fundraising events, reflecting the industry’s quest for bipartisan support for its legislative initiatives.
The crypto industry‘s push aligns with one of its most sought-after objectives—the approval of a Bitcoin ETF. The Securities and Exchange Commission (SEC) appears poised to greenlight at least one spot-based Bitcoin ETF, particularly after choosing not to appeal a legal loss concerning the Grayscale Bitcoin Trust (ticker: GBTC). Notably, Grayscale, along with major fund companies like BlackRock, ARK Invest, and Fidelity Investments, is on the verge of launching spot-based Bitcoin ETFs.
However, the crypto industry’s aspirations extend beyond the ETF approval. After nearly a decade of grappling with legal challenges over a Bitcoin ETF, companies within the sector aim to break free from the uncertainty stemming from outdated securities and trading regulations applied to crypto by judges. The industry is calling on Congress to either clarify or amend the law, partly to shield itself from regulatory bodies that perceive crypto as a lawless and perilous entity.
For companies like Coinbase Global, the outcome of this legislative effort has significant implications for the regulation of core activities, including trading and brokerage services. For the broader financial industry, Congress holds the key to new revenue streams through products like ETFs, trading profits from tokens, and access to crypto within 401(k) plans, an initiative led by Fidelity.
Mark Hays, an analyst and lobbyist for Americans for Financial Reform, a frequent critic of the token industry, emphasized the persistent presence of crypto industry lobbyists in lawmakers’ offices, stating that they are “literally in lawmakers’ offices every day.”
Although the departure of Sam Bankman-Fried, facing trial for fraud, has disrupted a substantial portion of the industry’s financial support, Coinbase has stepped up as a leading force in crypto lobbying. Over the past year, Coinbase CEO Brian Armstrong has taken on an increasingly prominent role in Washington, spearheading efforts to rally lawmakers to prioritize crypto.
In late September, Coinbase led a “Stand With Crypto Day” in Washington, facilitating the transportation of nearly 50 crypto executives and investors to meet with lawmakers in the House and Senate. Company leaders engaged with representatives from both political parties, including House Minority Leader Hakeem Jeffries and House Financial Services Committee Chairman Patrick McHenry. Crypto executives also targeted lawmakers in swing states, emphasizing the importance of crypto as a campaign issue for 2024.
Coinbase and other industry players are now seeking protection from the SEC’s stringent stance under Chair Gary Gensler, who has characterized most token trading on Coinbase, apart from Bitcoin, as illegal. In the worst-case scenario, regulatory crackdowns could erode more than a third of Coinbase’s revenue. Firms like Coinbase hope that Congress will enact legislation to exempt crypto from securities rules, thereby averting reliance on court rulings.
Furthermore, executives from Coinbase and other companies have been actively advocating for bills designed to limit the SEC’s authority over tokens and establish regulatory guidelines for “stablecoins,” digital-dollar tokens like USDC, in which Coinbase has a vested interest.
Crypto firms are also waging a defensive lobbying campaign against bills that would impose anti-money laundering requirements deemed excessively expensive or infeasible in the decentralized world of blockchain-based assets and trading.
Although there is some progress in the form of bills moving through the House Financial Services Committee, the industry faces challenges ahead. It remains uncertain whether Senate Democrats will support these measures or if President Joe Biden would sign a crypto bill into law.
With spending bills taking center stage in Congress this year and the approaching 2024 elections, the likelihood of a controversial crypto bill advancing in the near future is low. Nonetheless, Kristin Smith, CEO of the Blockchain Association, an industry trade group, suggests that some members of Congress have recognized the permanence of crypto in the financial landscape.
For now, the crypto industry may need to content itself with the imminent Bitcoin ETF approval, while its lobbying endeavors persist in the quest for legislative success next year.