Crypto industry spends big to win friends in Washington

A few weeks ago, Changpeng Zhao, a cryptocurrency tycoon worth $27 billion, entered a federal “halfway house” in southern California. The facility, meant to be a bridge between prison and civilian life, offers inmates job placements and “life skills” to help them “adjust to life outside of prison and become self-sufficient community members”.
One wonders if CZ, founder of Binance, the world’s largest cryptocurrency exchange, has availed himself of any of those services — including financial planning and budgeting — before his release this month.
The 47-year-old Chinese-born Canadian was sentenced to four months in prison after pleading guilty in November to breaching America’s Bank Secrecy Act (he began his incarceration in June). Binance, meanwhile, paid a record $4.3 billion (£3.3 billion) fine after admitting to breaking money laundering rules, and allowing its platform to be used as a financial conduit for “terrorists, cybercriminals and child abusers”. Its new chief executive — CZ has been barred for life from running Binance — said the company had matured and was laser-focused on compliance.
About 200 miles north of CZ, his bitter rival, Sam Bankman-Fried, often known as SBF, is settling in at a medium-security prison in Mendota, California. The 32-year-old former billionaire was recently transferred there to serve 25 years for misusing billions of dollars of clients’ money while running FTX, his defunct crypto exchange.
SBF and CZ defined the great crypto boom and bust of 2022 that saw $2 trillion of investor money vaporised and exposed a litany of scams. The industry wants you to forget all about them, or at best, to see them as rogues from another era, when crypto was a Wild West that attracted grifters in droves.
Crypto, you see, has grown up. For evidence, look no further than the 2024 election. Fairshake, a political action committee set up to fund pro-crypto candidates from the White House down to local races, has raised an eye-watering $203 million for this election cycle, led by the likes of Coinbase, America’s top-listed crypto exchange, and Andreessen Horowitz, the biggest venture capital back of the sector.
Once a niche outpost of techno-libertarians, crypto is now, via Fairshake, the most active corporate lobbyist on Capitol Hill. The organisation has already put $120 million of its cash pile to work — 48% of all corporate lobbying dollars this year, according to a recent report from consumer advocacy group Public Citizen — either backing pro-crypto candidates, or using that cash to change the minds of skeptics. It appears to be working. Donald Trump, who once dismissed crypto as, “based on thin air”, in July addressed a Nashville, Tennessee, bitcoin conference where he pledged to turn America into, “the bitcoin capital of the world”.
The question, of course, is why has the industry suddenly become so interested in Washington? The answer: it is fighting for its life.
America’s stock market regulator, the Securities and Exchange Commission (SEC), thinks that most of the industry — and certainly its most important companies, including Coinbase — is illegal. Led by chair Gary Gensler, a former Goldman Sachs banker, the SEC has long argued that cryptocurrencies are “securities”, like stocks and bonds. That means that anyone who creates a digital currency, or facilitates trading in them, should register with the SEC and comply with attendant regulations designed to protect the public from bad actors.
The industry vehemently disagrees, and has operated in flagrant opposition to America’s top public markets regulator, not registering with the SEC, nor subjecting itself to its rules. It is an untenable situation that, either through the courts or through legislation, will soon be resolved. Hence, the crypto industry’s sudden obsession with politics and the creation of Fairshake. Coinbase, which has contributed $45 million, is its biggest backer
“Never before have we had an entire industry literally say, ‘No. We hear what you’re saying, and we’re not going to do it. We’re collectively choosing to break the law,’” said Lee Reiners, a financial regulation specialist at Duke University. “The volume of money that they’re spending is indicative of how they view this election. They wouldn’t spend that much if they didn’t think the stakes for them were that high.”
Indeed, last year, the SEC sued Coinbase, accusing it of running an unregistered securities exchange. It filed similar suits against rivals Kraken and Binance. And pointedly, while the Department of Justice chose last year to settle with Binance — levying fines, forcing out CZ and subjecting him to just a few months in prison — the SEC did not. That case continues. Binance is barred from operation in America and Britain.
It is likely, however, that the Coinbase case, which is headed toward a jury trial after the judge this summer rejected Coinbase’s attempt to have the case dismissed, will be definitive for the industry.
Coinbase has become the face of the industry in America. It is publicly traded, is the trading platform for millions of Americans, and serves as counterparty to several large Wall Street firms who offer bitcoin investment products. Paul Grewal, Coinbase’s chief legal officer, tweeted this year: “We remain confident in our legal arguments, we look forward to proving we’re right.”
The stakes could not be higher. Coinbase serves not only as an exchange, it is also the broker, and a clearing house — functions that for securities companies, must all be separated. If the SEC wins, Reiners argued, Coinbase would be forced to break itself up. “They might not even be a going concern at that point,” he said. Coinbase did not respond to requests for comment.
While the court case plays out, the $40 billion company is leaving nothing to chance. Fairshake will fund any candidate — Republican, Democrat or independent — as long as they are pro-crypto. They have found allies. In May, the House of Representatives overwhelmingly passed a bill that would strip the SEC of some of its oversight powers and hand them to the Commodity Futures Trading Commission (CFTC), which views crypto — fungible digital assets created by computer code — as commodities, like wheat or gold. The CFTC has been far more friendly to the industry.
In a rare move, Gensler admonished lawmakers against passing the bill, warning that carving out crypto from its remit would imperil everyday investors and the broader financial system. “The crypto industry’s record of failures, frauds and bankruptcies is not because we do not have rules or because the rules are unclear,” he wrote. “It’s because many players in the crypto industry don’t play by the rules.”
The bill is unlikely to pass the Senate. Holdouts such as Elizabeth Warren view crypto as a tool for terrorist financing and sanctions avoidance. In a recent hearing with the director of national intelligence, she said: “Binance, just one of many crypto exchanges, processed $8 billion in transactions for Iran. Can you explain what threat that poses for our national security?”
Fairshake’s aim is to replace such skeptics with true believers, so that even if it loses in court, it can put in place more pliant congressman.
John Deaton, a cryptocurrency advocate backed by industry billionaires including Cameron and Tyler Winklevoss, just won the Republican primary to challenge Warren for her seat in November.
The margins are fine, with Democrats clinging to a 51-49 majority in the chamber. Warren said last week: “A small handful of crypto billionaires and corporate special interests poured more than $2 million to handpick their preferred Republican candidate, and now Massachusetts voters have a clear choice that could determine control of the Senate.”