After two elections where he has bucked Ohio’s rightward leaning, Democratic Sen. Sherrod Brown is clinging to narrower poll numbers. If he loses to unpopular car salesman Bernie Moreno next month, he could have crypto to blame.
Cryptocurrency companies are investing tens of millions of dollars in the race through a super PAC in response to Brown’s scathing criticism of the industry as chairman of the Senate Banking Committee.
Their leading role in the race shows just how much money – whatever the “coin” – is at stake.
Crypto found itself in the political doghouse after the collapse of Sam Bankman-Fried’s FTX fraud two years ago, but it attracted broad bipartisan support for its top legislative priority last May as it injected money in congressional races.
“In reality, their only way to continue their scams is to convince enough politicians to change the law. »
If crypto can topple Brown next month, critics warn, it could lead to more success for an agenda that includes neutralizing the Securities and Exchange Commission and opening the door for more traditional banks to hold crypto.
“They lose in the courts, they lose in the court of public opinion, so their only way to continue their scams is to convince enough politicians to change the law,” said Financial Reform CEO Dennis Kelleher. Better Markets, a non-profit organization. “The key to doing this is to eliminate everyone who opposes them.”
Crazy money
Operating through a group of blandly named super PACs, the crypto industry had made nearly half of all corporate donations in this year’s election, as of August. A single pro-crypto super PAC, Fairshake, has raised more than $200 million and spent more than $132 million this cycle.
Fairshake and its affiliates have spent millions supporting Democratic Senate candidates Reps. Ruben Gallego in Arizona and Elissa Slotkin in Michigan, as well as House candidates on both sides of the aisle.
Nowhere has crypto’s influence been more evident than in Ohio. In the last election cycle, a Bankman-Fried-funded super PAC now supported by Rep. Shontel Brown, D-Ohio, against progressive Nina Turner.
This year, crypto is gaining even more traction in the state. A Fairshake subsidiary, Defend American Jobs, spent more than $38 million on ads promoting Moreno and disparaging Brown, according to a recent Washington Post analysis.
A Fairshake spokesperson did not respond to a request for comment, but the reasons for these ad attacks are clear enough. Long before Bankman-Fried’s downfall, Brown was a vocal critic of cryptocurrency.
“The stablecoin and cryptocurrency markets are not really an alternative to our banking system,” he said in December 2021. “They are a mirror of the same failed system – with even less accountability and no rules of conduct.” All. »
The super PAC’s spending in a race that could hand control of the Senate to the GOP has made some Democratic industry leaders uncomfortable. A spokesperson for one of the PAC’s major donors, cryptocurrency exchange Coinbase, said the PAC’s spending decisions were made independently, a claim echoed by Andreessen Horowitz, a private equity firm. venture who has invested billions in the crypto industry.
Coinbase CEO Brian Armstrong said in a blog post that the company was making its donations in an effort to achieve “regulatory clarity.”
In June, Armstrong said: “Crypto voters won’t be taken seriously until we send a clear message to political candidates that being anti-crypto is bad policy.
Taming the SEC
Yet it’s not just “clarity” that Armstrong and others in the industry want. They also want specific legislation. “Having the wrong kind of regulation is worse than no regulation at all,” Armstrong said last month.
At the top of the list is legislation called the Financial Innovation and Technology for the 21st Century Act, or FIT 21, which would reclassify many types of crypto as commodities rather than securities.
This seemingly obscure change has broad implications. Observers generally consider the rules for commodities – such as corn and wheat – to be more relaxed than those for securities such as stocks and bonds.
“The CFTC was created to regulate corn futures.”
Just as important, crypto critics say, would be a corresponding change in surveillance. Under congressional legislation, crypto would abandon the SEC in favor of the Commodity Futures Trading Commission, an agency with fewer resources and a smaller regulatory staff.
“The CFTC was created to regulate corn futures,” said Mark Hays, senior policy analyst at Americans for Financial Reform and Demand Progress. “The people they are interested in are sophisticated hedge funds or agricultural traders, they are not set up to protect your cousin or your grandmother who logs into their phone.”
SEC Chairman Gary Gensler, who has established himself as a flagship of the crypto industry, warned of the consequences of the bill in a statement after it passed the House with bipartisan support in may. Fraudsters could brand themselves as crypto companies in order to evade government surveillance, he said.
Gensler said: “The crypto industry’s record of failure, fraud and bankruptcy is not because we don’t have rules or because the rules aren’t clear. This is because many players in the crypto industry do not play by the rules.
Open banks
So far, the crypto industry’s preferred bill has not advanced in the Senate, although Majority Leader Chuck Schumer, D-N.Y., recently made favorable comments.
Gensler also warned of the risk of further contamination of the US capital market. The problem arose in 2022, when SEC staff attempted to reduce the danger by advising financial institutions like banks to treat crypto as a liability rather than an asset on their balance sheet.
The SEC thought crypto was too vulnerable to theft, fraud, or loss of wallet keys, but the crypto industry and bankers cried foul.
Stand With Crypto, an industry advocacy group, said the guidelines “disincentivize banks from offering digital asset custody at scale and limit banks’ ability to develop secure and innovative use cases for blockchain technology.
Although the guidelines were not binding, for banks that decided to follow them, it meant that holding crypto for clients would require them to increase other holdings.
Congress passed a law overturning those guidelines, but President Joe Biden vetoed it in June. For now, the guidelines remain in place. Yet the crypto industry still harbors its greatest ambition: making it easier for traditional financial institutions to hold cryptocurrencies.
Hays, the policy analyst for Americans for Financial Reform, said: “They also want some of the other non-bank players that are custodians of cryptocurrencies to be in the green. »
“Stable” parts
Sometimes lost in the fallout from the Bankman-Fried saga is the story of an earlier crash involving a so-called stablecoin, TerraUSD, which was supposed to maintain a one-to-one peg to the dollar.
In short, this is not the case. Investors who thought they were getting into crypto in the safest way possible have seen their savings wiped out.
“A stablecoin is effectively nothing more than a crypto money market fund, with all the risks and dangers of a money market fund.”
TerraUSD was an “algorithmic” stablecoin, meaning it was not backed by real assets. One of the industry’s best hopes in Congress is to pass legislation allowing stablecoins backed by tangible assets.
Rep. Maxine Waters, Democrat of California, ranking member of the House Financial Services Committee and frequent crypto skeptic, floated the idea last month of reaching a “grand deal” with Republicans in the lame-duck Congress after the elections.
Although stablecoins appear to have more legislative underpinnings than other crypto proposals, skeptics like Better Markets’ Kelleher are wary. He compared them to money market funds, which had to be saved from collapse by the Federal Reserve in 2008 and 2020.
“A stablecoin is effectively nothing more than a crypto money market fund, with all the risks and dangers of a money market fund,” he said. “Except it has even more, because it is a crypto product that is not only unregulated, but also non-transparent.”
Editor’s note: In September 2022, The Intercept received $500,000 from Sam Bankman-Fried’s foundation, Building a Stronger Future, as part of a $4 million grant to fund our prevention coverage. pandemics and biosecurity. This grant has been suspended. Consistent with our general practice, The Intercept disclosed the funding in subsequent reports on Bankman-Fried’s political activities.
