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If a Martian landed on Wall Street or in Washington this Easter, they might think that crypto was in retreat. On Thursday, a New York court gave a 25-year prison sentence to Sam Bankman-Fried for fraud and conspiracy following the collapse of FTX, the once-dominant crypto platform.
Next month, Changpeng “CZ” Zhao, the former head of the world’s biggest crypto-trading platform, Binance, is due to be sentenced for failing to implement anti-money laundering policies. Meanwhile, the US Securities and Exchange Commission has just won ground in a suit against Coinbase. And away from the law courts, crypto luminaries such as Mike Novogratz have seen their digital tokens such as Luna implode in recent years. Ouch.
But if you thought all this might have humbled crypto-lovers, think again. This month the bitcoin price hit a record high of $73,000 — four times its level in late 2022 when FTX imploded. That partly reflects the fact that the supply of bitcoins is being reduced because of an imminent halving in the pace of “mining” (the creation of tokens via computer code). However, it is also because a slew of bitcoin exchange traded funds have launched after gaining regulatory approval.
What is even more remarkable than bitcoin’s headline-grabbing price is that the crypto sector is now unleashing a lobbying campaign, ahead of the 2024 presidential election, to shape future regulatory battles. The scale of this is striking.
Take a look at data collected by Open Secrets, a non-profit organisation. It says that in the 2020 election cycle, the funds given by crypto lobbying groups to political action committees and candidates were a mere $1.5mn. In the 2022 midterm elections that leapt to $27mn, with FTX the biggest donor by far.
Nor did this stop with the implosion of FTX. On the contrary, Open Secrets told Reuters that 2023 donations were significantly higher than the year before, because Coinbase unleashed a surge of spending, alongside the Blockchain Association and Binance.
And this week Dennis Kelleher, head of Better Markets, another non-profit, and crypto critic, wrote that “a crypto industry dark money group . . . with the Orwellian name ‘Fairshake’ raised nearly $80mn in just the last three months of 2023”.
Kelleher says this is being used to attack politicians who have expressed reservations about crypto, such as the Democrat senators Elizabeth Warren and Sherrod Brown. Indeed, the campaign has already helped to knock out one anti-crypto voice, Katie Porter, who recently lost a Californian primary.
Porter’s loss has left other candidates toning down their anti-crypto views, Kelleher tells me. “If you are going to put $100mn into the election system 10 months before an election, people take notice.”
The crypto industry, unsurprisingly, denies that this is a problem. The Fairshake website, for instance, waxes lyrical about the need to support “innovators building the next generation of the internet”, and argues that “a clearer regulatory and legal framework is vital if the broader open blockchain economy is to grow to its full potential” in the US.
Crypto enthusiasts also point out that their lobbying is modest compared with that of the mainstream banking sector, or other business areas such as oil and gas.
There is a kernel of truth to both claims. The current regulatory framework is indeed a mess, and in need of reform. And if you look at the scale of crypto lobbying, it almost certainly is smaller than the torrent of dollars unleashed by the banks after the 2008 financial crisis to fight regulation.
But one thing that makes the current crypto campaign notable is its concentrated firepower, whereas the mainstream financial industry’s campaign is spit between different parts of the sector. Another is that crypto sparks bipartisan reactions, since the pro- and anti-camps include Republicans and Democrats.
The third striking point is that this lobbying seems to contradict the mantra often intoned by the denizens of the digital assets world. When bitcoin was first created, enthusiasts presented it as a tool that would enable citizens to challenge the establishment — it was meant to be the antithesis of the Washington “swamp”.
But the numbers revealed by Open Secrets show just how deeply Bankman-Fried, once the crypto sector’s golden boy, had waded into the swamp by funding politicians. So much for those lofty ideals.
The Blockchain Association, for its part, seems to acknowledge the tension, but argues that it has no choice but to lobby. “We raise our voice, not to inject ourselves needlessly into a political world that is new to many of us, but to stand up for what our experience tells us is right,” it recently wrote. If you cannot beat ’em, you have to join ’em in the swamp — or so the argument goes.
If nothing else, this sordid tale shows both the contradictions in crypto and the deeply corrosive influence of money on 21st-century American policymaking. The former is diverting, particularly given the spectacular fall of Bankman-Fried. But it is the latter that we really need to worry about as the election looms.