Following two recent elections where he defied Ohio’s conservative trend, Democratic Sen. Sherrod Brown is barely holding onto the slightest lead in polls. If he loses to unpopular car salesman Bernie Moreno next month, he may attribute his loss to cryptocurrency.
Cryptocurrency companies are funneling millions of dollars into the election through a super PAC in response to Brown’s strong criticism of the industry as Senate Banking Committee chair.
The significant role of cryptocurrency in the election highlights the power of money in influencing political outcomes.
Cryptocurrency faced backlash after the collapse of Sam Bankman-Fried’s FTX fraud two years ago, but gained bipartisan support for its key legislative priority in May as it invested heavily in congressional races.
“Really their only avenue here to continue their scams is to get enough politicians to change the law.”
If cryptocurrency succeeds in defeating Brown next month, critics caution that it could pave the way for further success in pushing an agenda that includes weakening the Securities and Exchange Commission and allowing traditional banks to hold cryptocurrency.
“They’re losing in the courts, they’re losing in the court of public opinion, so really their only avenue here to continue their scams is to get enough politicians to change the law,” said Dennis Kelleher, the CEO of financial reform nonprofit Better Markets. “The key to that is taking out anybody who opposes them.”
Mad Money
Through a network of unassuming super PACs, the cryptocurrency industry has accounted for almost half of all corporate donations in this year’s elections as of August. A single pro-crypto super PAC, Fairshake, has raised over $200 million and spent more than $132 million in this cycle.
Fairshake and its affiliates have invested millions in supporting Democratic Senate candidates Reps. Ruben Gallego in Arizona and Elissa Slotkin in Michigan, as well as House candidates from both parties.
The impact of cryptocurrency in Ohio has been particularly noticeable. In the previous election cycle, a super PAC funded by Bankman-Fried supported now-Rep. Shontel Brown, D-Ohio, over progressive Nina Turner.
This year, cryptocurrency is playing an even larger role in the state. A Fairshake affiliate, Defend American Jobs, has spent over $38 million on ads promoting Moreno and criticizing Brown, according to a recent Washington Post analysis.
A Fairshake spokesperson did not respond to a request for comment, but the motivations behind the attack ads are apparent. Long before Bankman-Fried’s downfall, Brown had been a vocal opponent of cryptocurrency.
“Stablecoins and crypto markets aren’t truly an alternative to our banking system,” he stated in December 2021. “They’re a reflection of the same flawed system –– with even less accountability, and no regulations at all.”
The super PAC’s investment in a race that could shift control of the Senate to the GOP has unsettled some Democratic industry leaders. A spokesperson for one of the PAC’s major donors, the crypto exchange Coinbase, stated that the PAC’s spending decisions are made independently, a claim reiterated by Andreessen Horowitz, a venture capital firm that has invested billions in the crypto industry.
Coinbase CEO Brian Armstrong explained in a blog post that the company’s donations aim to achieve “regulatory clarity.”
In June, Armstrong asserted, “Crypto voters won’t be taken seriously until we send a clear message to political candidates that it is bad politics to be anti-crypto.”
Taming the SEC
However, Armstrong and other industry players are not just seeking “clarity.” They are also pushing for specific legislation. “Getting the wrong kind of regulation is worse than none at all,” Armstrong stated last month.
At the top of their list is the Financial Innovation and Technology for the 21st Century Act, or FIT 21, which would reclassify many types of cryptocurrency as commodities rather than securities.
The seemingly obscure change has broad implications. Generally, the regulations for commodities, such as corn and wheat, are considered less stringent than those for securities like stocks and bonds.
“The CFTC was set up to regulate corn futures.”
Equally important, critics of cryptocurrency argue, would be a corresponding shift in oversight. Under the proposed legislation, cryptocurrency would move from the SEC to the Commodity Futures Trading Commission, a body with fewer resources and a smaller regulatory staff.
“The CFTC was set up to regulate corn futures,” explained Mark Hays, a senior policy analyst with Americans for Financial Reform and Demand Progress. “The people they’re looking at are sophisticated hedge funds or ag traders, they are not set up to protect your cousin or your grandma logging onto their phone.”
SEC Chair Gary Gensler, who has become a target for the cryptocurrency industry, cautioned about the implications of the bill after it passed the House with bipartisan support in May. He warned that scammers could disguise themselves as cryptocurrency companies to evade government oversight.
Gensler stated, “The crypto industry’s history of failures, frauds, and bankruptcies is not due to a lack of rules or unclear rules. It’s because many players in the crypto industry do not play by the rules.”
Opening Up the Banks
So far, the favored legislation of the cryptocurrency industry has not progressed in the Senate, although Majority Leader Chuck Schumer, D-N.Y., recently expressed support.
Gensler also warned of the potential for broader contamination of the U.S. capital market.
In 2022, the SEC attempted to address the risks associated with cryptocurrency by advising financial institutions to classify crypto as a liability rather than an asset on their balance sheets. This move was met with criticism from the crypto industry and bankers, who argued against the guidance. Stand With Crypto, an industry advocacy group, expressed concerns that the guidance would hinder banks from offering digital asset custody at scale and limit innovation in blockchain technology.
While the guidance was not mandatory, banks that chose to comply would need to adjust their holdings to accommodate holding crypto for customers. Despite Congress passing legislation to overturn the guidance, President Joe Biden vetoed the bill in June, leaving the guidance in place for the time being. The crypto industry continues to push for easier access for traditional financial institutions to hold crypto assets.
Another important issue that has emerged is the instability of stablecoins, such as TerraUSD, which failed to maintain its one-to-one peg with the dollar, resulting in losses for investors. There is a push in Congress to authorize stablecoins backed by tangible assets to prevent such incidents in the future. Rep. Maxine Waters has proposed a potential “grand bargain” with Republicans to address stablecoin regulation.
However, skeptics like Kelleher warn of the risks associated with stablecoins, likening them to money market funds that required intervention from the Federal Reserve to prevent collapse. The lack of regulation and transparency in the crypto market adds to the concerns surrounding stablecoins.
In a disclosure, it was revealed that The Intercept had received funding from Sam Bankman-Fried’s foundation, which was later suspended. This funding was intended to support pandemic prevention and biosafety coverage.
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