Don't let the crypto industry buy its way to new regulatory policy

Chris Ratcliffe/Bloomberg

The cryptocurrency industry has a big problem: Federal regulators believe many leading crypto companies, not just the notorious Sam Bankman-Fried's FTX, are operating outside the bounds of the law.

But the industry that is literally in the business of manufacturing money has a solution: Spend gobs of money — not cryptocurrency, but real dollars — on our elections, in order to change the laws.

Cryptocurrency industry super PACs have already raised more than $160 million to spend on the 2024 congressional elections, according to a May Public Citizen report and recent disclosures. No other super PACs have raised more money so far this cycle.

All this money is not to advance civics. The industry is openly boasting about its plan to leverage its political spending to purchase new rules and regulatory legitimacy. And they're already making big inroads.

The House of Representatives on May 22 passed a bill 279-139 that would give the U.S. government's official blessing to an industry with no demonstrable public benefit. The bill would make the Commodity Futures Trading Commission — widely seen as a lax financial regulator — the primary overseer of digital assets.

"We'll have the resources to affect races and the makeup of institutions at every level," said Josh Vlasto, a spokesperson for the industry-leading super PAC, called Fairshake. "And we'll leverage those assets strategically to maximize their impact in order to build a sustainable, bipartisan crypto and blockchain coalition." Not so incidentally, Vlasto is a former chief of staff for New York Gov. Andrew Cuomo and a former top aide to Senate Majority Leader Chuck Schumer, D-N.Y.

Over half of the money funding Fairshake, and its affiliates, Protect Progress PAC and Defend American Jobs PAC, comes directly from crypto corporations. Coinbase and Ripple Labs, each of which contributed about $48 million, are the biggest contributors. 

Four of the eight corporate crypto super PAC donors have settled or are facing charges by the Securities and Exchange Commission for alleged violations of securities laws. Ripple Labs alone is reportedly facing nearly $2 billion in penalties. With their political spending, the crypto companies hope to defang the SEC and provide a government seal of approval to a reckless, speculative investment industry. 

"We need to make sure the [SEC] does not get weaponized with a political agenda," Coinbase CEO Brian Armstrong said. "To do that, the crypto industry is going to have to get a bit more sophisticated and powerful in terms of our lobbying efforts and our political power that we can bring to bear for the 2024 election." Armstrong himself contributed $1 million to Fairshake.

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While the crypto super PACs' backers are explicit that their purpose is to drive their policy agenda in Washington, they are less interested in revealing their purpose to the voters they seek to influence.

Fairshake spent $10 million against Rep. Katie Porter in the California Senate Democratic primary race. None of the advertisements that the super PAC ran against Porter mention cryptocurrency. Instead, they deploy a strategy of carefully worded "populist" attacks seeking to paint their target as an untrustworthy politician.

Similarly, Fairshake affiliate Defend American Jobs spent $3 million supporting Jim Justice in the West Virginia Senate Republican primary. The super PAC ran an ad lauding Justice as a "can-do businessman" and a "rock-solid conservative who fought for West Virginia jobs" — but makes zero mention of crypto.

Among Fairshake's stated targets in the general election are Ohio and Montana, where incumbent Democrats are defending seats in states that Trump won in 2020. Both incumbents — Senators Sherrod Brown in Ohio and Jon Tester in Montana — sit on the Senate Banking Committee and have sharply criticized the Ponzi-like schemes and rampant fraud that have characterized the crypto sector.

The narrow partisan divides in Congress mean the crypto sector's outsize influence in a small number of races has the potential to tip control of Congress toward one party or the other.

The cryptocurrency sector is only the latest in a long line of corporate interests seeking to distort our democracy by converting their financial power into political power. 

But it's not every day you see an industry operating on the fringes of the law trying to buy its way to legitimacy. The spectacular collapse of FTX at the expense of millions of people, many of whom lost their life savings, plus the widespread use of cryptocurrency for drug money laundering and other illicit purposes, should have ended any talks of providing ultra-loose regulatory standards for crypto corporations.

And it would have, if merits were driving the policy discussion. The crypto kings know very well that they will lose the policy contest if it plays out on a level playing field. So, they are using the money they are making on inflated crypto markets to tilt the field. Unfortunately, when crypto firms go bust or bubbles deflate, it's small investors who take the worst hits. That's a foreseeable and preventable crisis: the time is now to stop the cryptocurrency industry from buying its way to regulatory legitimacy.