Crypto lobbying becomes ballistic

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December 7, 2021

BETWEEN 2017 and mid-2021, the Commodities Futures Trading Commission (CFTC), the US regulator of derivatives markets, was one of the agencies that discussed crypto the most. Brian Quintenz, who headed his tech committee, was responsible for much of this, hosting presentations on everything from the integrity of the bitcoin spot markets to decentralized finance. “I have gained a reputation for being… an advocate for innovation,” he says.

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In September, Mr. Quintenz joined Andreessen Horowitz, a venture capitalist and investor in crypto startups, as an advisor. He is just one of many former U.S. officials who have flocked to the cryptoversy. Others include Jay Clayton, the former head of the Securities and Exchange Commission (SEC); Brian Brooks, who until January was the Acting Comptroller of the Currency; and Chris Giancarlo, head of the CFTC between 2017 and 2019. In Britain, former Chancellor Philip Hammond, joined Copper, a crypto startup, in October.

Despite a recent swing, the market value of crypto assets has increased 12-fold since early 2020, reaching $ 2.4 billion. Some places, like El Salvador, have sought to ride the wave, embracing crypto to gain fame. Others, like China and India, have threatened to ban it. Watchdogs in America and Europe, home to a lot of crypto-trading activity, by contrast, are just starting to sniff out digital assets. And that in turn prompts crypto firms to try to lead, if not entirely avoid, the next wave of regulation. “All of a sudden,” says Loni Mahanta of the Brookings Institution, a Washington think tank, lobbying “is on a rocket.”

Tons of regulations are potentially at stake. One set is preventing crypto assets from being used for money laundering. In October, the Financial Action Task Force, an intergovernmental body that sets global standards, recommended new rules for crypto service providers, including those regarding the user data they must collect. Countries are implementing them, but at varying speeds. A second area, overseen by lawmakers, concerns the taxation of crypto investments. Some countries treat them like property, with capital gains levies due only on the sale of assets. Others view them as foreign currency, which means unrealized gains are taxed as well.

A third set of rules concerns financial regulation: protecting consumers against fraud, reducing systemic risk and ensuring fair competition. Market watchdogs are questioning whether digital assets count as securities, which require significant disclosures from issuers, or as commodities, where the (lighter) burden falls on exchanges to prevent manipulation of the market. Marlet. Gary Gensler, the head of the SEC, has said he wants stricter policing of the “Wild West” crypto. The EU is preparing rules that force crypto companies to apply for licenses and ban tweets intended to manipulate markets. Officials seem more eager to tame stablecoins, tokens tied to conventional currency.

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Until recently, most crypto firms, some of which yearn for a libertarian utopia where blockchains remove the need for financial intermediaries and regulators, paid little attention to those responsible. But that changed as the pressure increased. Binance, a major crypto exchange, came under intense scrutiny this summer, with regulators in the UK, Germany and Japan warning that it was carrying out certain operations in their jurisdictions without proper authorization. Another red flag came from America in August, when a clause requiring many crypto companies to report transactions to the tax authorities was inserted into President Joe Biden’s infrastructure bill. The industry has started a counteroffensive.

One of them was to attract government officials and bank compliance experts with big salaries. Deepali Vyas of Korn Ferry, a headhunter firm, says senior risk managers are typically promised a salary of $ 600,000 to $ 2 million; former senior regulators are also stuck with stock options worth tens of millions of dollars, which vest over many years. The former head of a US regulator, now part of a crypto group, says he spends a lot of time meeting with lawmakers and officials.

The industry is also hiring lobbyists. Based on public disclosures, The Economist calculates that crypto firms spent around $ 5 million lobbying the US Senate in the first nine months of 2021. About $ 2.5 million was spent between July and September, a quadruple compared to the same period last year. These businesses employ the equivalent of 86 full-time employees, up from just one in 2016. Coinbase, a large crypto exchange, distributed $ 625,000 to lobbyists in the third quarter alone. Block, a crypto-enabled payments company, has spent more than $ 1.7 million since April 2020. The campaign is also intensifying in Brussels, the de facto capital of the EU, where the industry has deployed the equivalent of 52 full-time lobbyists.

Some large companies are trying to anticipate stricter rules by making their own proposals: Andreessen, for example, is pushing for self-regulation, while Coinbase is arguing for a new industry watchdog. Another avenue of influence comes from companies that come together through professional associations. Perianne Boring, who heads the Digital Chamber of Commerce, a U.S. group made up largely of crypto companies, says her work ranges from defending bitcoin exchange-traded funds to rebutting arguments linking cryptocurrencies to ransomware. “We are seeing higher-level officials engaging with us,” she said.

The industry has also gained political capital. In America, the Congressional Blockchain Caucus has 35 legislators among its members. Wyoming Senator Cynthia Lummis received much of her contributions to the 2026 campaign from people with links to crypto companies. Last month, she said she opposed the re-appointment of Jerome Powell as head of the Federal Reserve because of the central bank’s “political approach to digital assets”. In October 2020, the Political Action Committee of the Digital Chamber of Commerce awarded $ 50 in bitcoin to each member of Congress.

With watchdogs on the alert, the regulatory visions of crypto-capitalists are unlikely to materialize in full. But the risk is that they lead to puny rules. In August, passage of the infrastructure bill was delayed for a week after a bipartisan group of lawmakers opposed the crypto provision. The legislation, including the provision, was finally enacted in November. But a new bill is now trying to weaken the crypto clause. The rewards for passing through revolving doors only increase. ■

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This article appeared in the Finance & economics section of the print edition under the title “Crypto’s crew”

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