As crypto cash floods Washington, Congress eyes gentler regulations

Cryptocurrency companies and investors have spent at least $149 million over the past four years to thwart tough regulation, elect new allies to Congress and defeat lawmakers seen as potential threats, a campaign that culminated this week with a House vote to soften federal oversight of the embattled industry.

The wide array of financial backers include Coinbase and Ripple, which the U.S. government recently sued for allegedly violating federal rules meant to protect investors from harm. Even as they have come under withering scrutiny, these and other major crypto firms have fought not only to rebuff the charges but to remake the laws entirely, mounting an expensive lobbying effort that has left no part of Washington untouched.

On Capitol Hill, the industry has shelled out more than $60 million to shape federal policy since the start of 2021, according to filings analyzed by The Washington Post and data from OpenSecrets and Public Citizen, two money-in-politics watchdogs. The lobbying campaign helped spur the House on Wednesday to advance the Financial Innovation and Technology for the 21st Century Act, the first major piece of legislation on cryptocurrency to clear either chamber of Congress.

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The bill would shift some federal oversight of crypto from the Securities and Exchange Commission, an aggressive regulator, to the Commodity Futures Trading Commission (CFTC), which some critics see as weaker, friendlier to industry and underfunded. Coinbase, Ripple and lobbying groups like the Blockchain Association and the Crypto Council for Innovation helped House Republicans devise the legislative approach, then aggressively canvassed the Capitol to rally votes for its passage.

Industry executives, investors and workers — along with their companies’ official political operations — have also contributed nearly $90 million to campaigns and other groups over the last two elections, according to the analysis. They supported the architects and advocates of the House bill, including Rep. Patrick T. McHenry (R-N.C.), who chairs the House Financial Services Committee. And the industry financed a trio of powerful new super PACs, which have flooded the airwaves with TV ads touting friendly candidates in both parties — often without mentioning crypto at all.

The spending estimates are an undercount, partly because federal campaign finance laws do not require companies and executives to disclose donations to certain nonprofit groups. Even so, the figures suggest the crypto industry now belongs to a category of Beltway powerhouses that regularly shell out massive sums to influence U.S. policymaking.

Speaking with reporters a day before passage of the House bill, McHenry acknowledged the myriad ways that cryptocurrency companies are “maturing” in Washington, a dynamic he described as critical toward crafting Congress’s first major crypto bill.

“That is a benefit for this vote,” McHenry said of the industry’s outreach, “and for policymakers to see that.”

Coinbase declined to make an executive available for an interview. Brad Garlinghouse, the chief executive of Ripple, said crypto ramped up politically to “provide a perspective about all the constructive, positive things about this industry.”

The Senate has not said if it plans to consider the legislation this year. The White House this week said it “opposes” the proposal but did not explicitly threaten a veto. Other leading federal watchdogs have issued more dire pleas in recent days, warning that the House crypto bill could unleash new dangers for the economy.

“The crypto industry’s record of failures, frauds, and bankruptcies is not because we don’t have rules or because the rules are unclear,” SEC Chair Gary Gensler said in a statement. “It’s because many players in the crypto industry don’t play by the rules.”

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The industry’s rapid ascent in Washington is striking, two years after the calamitous failure of FTX, a marketplace where people could buy and sell virtual currencies — known as an exchange — that had been the world’s third-largest platform and was once valued at $32 billion.

In March, a federal court sentenced the company’s once-ubiquitous leader, Sam Bankman-Fried, to 25 years in prison, finding him guilty of numerous crimes that stemmed from his misuse of customers’ deposits on risky bets and illegal political donations. His actions ultimately wiped out FTX, leaving the company in bankruptcy and customers scrambling for refunds.

After the FTX scandal, many lawmakers sounded alarms that a wider crypto collapse could imperil the broader economy. But those warnings only quickened the political evolution already underway in the industry, which quadrupled the number of registered lobbyists in Washington from 58 in 2020 to more than 270 by the end of last year, federal data shows.

“There needs to be an organized, concerted effort to engage with Washington,” said Kristin Smith, chief executive of the Blockchain Association, which represents many of the largest crypto platforms and investors. She added that it “was very clear in the post-FTX collapse that the crypto industry was in the penalty box.”

On Capitol Hill, the industry specifically sought “regulatory clarity,” primarily through legislation that would vest oversight responsibilities with the CFTC, a half-century-old agency originally meant to oversee corn and grain futures. Many crypto supporters viewed it as a friendly regulator — at least compared with the SEC, which in recent years has brought 170 enforcement actions against digital currencies and trading platforms, including Binance, Coinbase and Ripple.

“U.S. regulators have taken sporadic and ambiguous enforcement actions based on decades-old rules designed for a system that looks more and more like the past,” Paul Grewal, the chief legal officer for Coinbase, told lawmakers at a hearing in March 2023, fretting that the patchwork U.S. legal system had allowed for the rise of unregulated foreign competitors.

By summer, House Republicans responded with the bill known as FIT21, a highly complicated proposal that would create a pathway for cryptocurrency companies to be regulated primarily by the CFTC. (The agency’s chairman, Rostin Behnam, had made a similar push for a greater role in cryptocurrency, boasting in 2022 that “bitcoin might double in price” if the CFTC oversaw the market.)

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The measure also would relax some of the financial disclosures crypto firms must provide customers while limiting when investors could sue for abuse. Crucially, the bill would provide no new funding for the CFTC, despite the agency’s recent calls to Congress for a bigger budget. The commission did not respond to a request for comment.

Unveiling the bill last year, Rep. Glenn Thompson (R-Pa.) heralded it as a “much-needed regulatory framework.” As the leader of the House Agriculture Committee, which oversees the CFTC, he said the panel had sought “extensive feedback from stakeholder and market participants.” (His office did not respond to a request for comment.)

Many cryptocurrency lobbyists and lawyers acknowledge they were closely involved in helping to draft the proposal. Sheila Warren, chief executive of the Crypto Council for Innovation, said this week that her group “workshopped” some of the provisions “a year-and-a-half, or two years ago.” The group is backed by companies like Coinbase and investors including Andreessen Horowitz, a prominent Silicon Valley venture capital firm.

The industry’s proximity to the legislation spooked consumer watchdogs, who argued the House threatened to create new major regulatory gaps. Some lawmakers feared the FIT21 bill could open the door for other financial institutions to evade SEC regulation, a charge that House Republicans deny.

Rep. Maxine Waters (D-Calif.), the top Democrat on the House Financial Services Committee, said she believed the legislation “would allow [cryptocurrency companies] to absolutely ignore a lot of the compliance that others have to be responsible for,” creating a lapse in oversight that could ultimately “catch up with us.”

Lawmakers still approved the measure on a bipartisan 279-136 vote on Wednesday, marking the latest win for the industry. Congress also this month voted to limit other SEC policies, and the House voted to block the Federal Reserve from offering a digital dollar.

Many Democrats said the dynamic recalled the 2008 financial crisis, when Washington failed to prevent the country’s largest banks from underwriting risky mortgages. Roughly 6 million people lost their homes in the resulting financial crisis and recession, while the U.S. government spent trillions of dollars digging the nation out from the wreckage.

“Before the 2008 crash, when I talked about how inadequate our oversight of the banks was, I kept saying, it all looks okay today, but this will end badly,” Sen. Elizabeth Warren (D-Mass.) said in a recent interview. “I feel that way today. It may look okay out there right now, but inviting crypto deeper into our economy without putting adequate regulations in place will end badly.”

Cryptocurrency companies strongly resist those comparisons, arguing that members of Congress simply do not understand the new, fast-paced industry. To further shore up support on Capitol Hill, they have set their sights on this year’s election. Garlinghouse, the Ripple CEO, cited the “megaphone Elizabeth Warren has” as a reason for the industry’s massive campaign spending.

Many supporters of the House bill long have benefited from cryptocurrency cash. McHenry, who is retiring, has received more than $188,000 from the industry in recent years, according to the data. Appearing onstage at a crypto conference the week before the vote, he promised the House would ensure “no future [SEC] chair can do what [Gensler] has done to digital assets.” His comments drew broad support from the crowd, which spent the day ridiculing the SEC.

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Thompson has received more than $39,000 and Rep. French Hill (R-Ark.), chairman of a key crypto-focused panel, received over $42,000, records show. The third-most powerful House Republican, Rep. Tom Emmer (R-Minn.), has collected more than $168,000. Emmer has previously encouraged lawmakers to espouse crypto in exchange for campaign support.

The industry also has incubated a trio of super PACs, including Fairshake, which formally launched in March 2023 and secured major donations from Coinbase, Ripple and a firm backed by investors Marc Andreessen and Ben Horowitz. The super PACs together have raised more than $87 million, according to Fairshake spokesman Josh Vlasto, who said in a statement they would “support members and candidates on both sides of the aisle who will stop playing politics and get things done.”

With the power to spend unlimited money, these super PACs have targeted congressional races around the country with roughly $19 million in ads, according to data compiled this month by AdImpact. They plan to spend additional sums in critical battleground states such as Ohio and Montana, which may determine control of the Senate.

“There’s no doubt it is intended to send a message to members of Congress,” said Rep. Katie Porter (D-Calif.), an advocate for financial regulations who lost a primary campaign for Senate this month after being targeted by roughly $10 million in negative crypto-funded advertising.

So far, 11 congressional candidates backed by crypto-funded super PAC ads have won their 2024 primaries, including Jim Banks, a Republican running to represent Indiana in the Senate, and Shomari Figures, a Democrat running for the House in Alabama. Many of these aspiring lawmakers have heralded crypto — and opposed federal regulation.

The dynamic was on display May 14, as West Virginia State Treasurer Riley Moore won the GOP nomination to represent a House district in the northern part of the state. A crypto-aligned super PAC called Defend American Jobs swooped into the race in its final days, spending more than $750,000 to boost Moore — the nephew of Sen. Shelley Moore Capito (R-W.Va.) — in a competitive field, according to AdImpact.

One ad praised Moore for his work to balance the state budget, attract manufacturing jobs and maintain a “tough” stance on China. Viewed more than 10 million times, the 30-second TV spot did not mention cryptocurrency, though Moore added a section to his website promising he would “foster this emerging industry.”

“In Congress,” the ad’s narrator intoned, “Moore will stand up for us.”

A spokesman for Moore declined to comment. His Democratic challenger, Steve Wendelin, blasted the influx of crypto money, arguing that “crypto is not a concern of the average West Virginian at all.”

“All these crypto guys,” Wendelin said, “are trying to buy up all these politicians.”

Clara Ence Morse contributed to this report.

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