Cryptocurrency companies and investors have poured over $149 million into lobbying efforts over the past four years to weaken regulatory oversight and bolster political allies in Congress. This culminated last week with the House passing the Financial Innovation and Technology for the 21st Century Act (FIT21), a bill that seeks to ease federal scrutiny of the embattled industry.
Among the major financial backers of this campaign are Coinbase and Ripple, both of which are currently facing lawsuits from the U.S. government for allegedly violating investor protection regulations. Despite these legal battles, these and other prominent crypto firms have aggressively lobbied to reshape federal laws in their favor, impacting nearly every facet of Washington.
On Capitol Hill alone, the crypto sector has spent over $60 million since 2021 to influence federal policy, as reported by The Washington Post and based on data from OpenSecrets and Public Citizen. This intense lobbying effort contributed to the House’s decision to advance FIT21, marking the first significant piece of cryptocurrency legislation to pass either chamber of Congress.
The bill proposes to transfer some regulatory responsibilities from the stringent Securities and Exchange Commission (SEC) to the more industry-friendly and underfunded Commodity Futures Trading Commission (CFTC). Advocates argue this shift would provide clearer regulatory guidance for the crypto industry, but critics warn it could weaken protections for investors. Coinbase, Ripple, and lobbying entities like the Blockchain Association and the Crypto Center for Innovation were instrumental in crafting and promoting this legislative approach.
Industry figures, investors, and their affiliated political groups have also funneled nearly $90 million into campaigns and related activities over the last two elections, supporting key lawmakers behind the House bill, including Rep. Patrick T. McHenry (R-N.C.), chair of the House Financial Services Committee. The crypto sector has also financed three influential super PACs, which have spent millions on television ads promoting favorable candidates across both political parties, often without directly mentioning cryptocurrency.
These spending figures likely underestimate the total financial influence due to gaps in federal campaign finance disclosure laws. Nonetheless, the crypto industry’s substantial investment in lobbying places it among the most powerful interest groups in Washington.
In a recent statement, SEC Chair Gary Gensler criticized the industry’s record, stating, “The crypto industry’s record of failures, frauds, and bankruptcies is not because we don’t have rules or because the rules are unclear. It’s because many players in the crypto industry don’t play by the rules.”
The rapid rise of the crypto industry in Washington is noteworthy, especially in the aftermath of the FTX collapse. In March, Sam Bankman-Fried, the disgraced founder of FTX, was sentenced to 25 years in prison for numerous crimes, including the misuse of customer funds and illegal political donations. This scandal underscored the potential dangers of inadequate regulation, but it also accelerated the industry’s political engagement, quadrupling the number of registered lobbyists from 58 in 2020 to over 270 by the end of last year.
Kristin Smith, CEO of the Blockchain Association, emphasized the need for a coordinated effort to engage with Washington, especially after the FTX collapse placed the industry “in the penalty box.”
The industry’s push for “regulatory clarity” has largely focused on legislation that would shift oversight to the CFTC. Many crypto advocates view the CFTC as a more favorable regulator compared to the SEC, which has pursued 170 enforcement actions against digital currencies and trading platforms, including Binance, Coinbase, and Ripple.
Paul Grewal, Coinbase’s chief legal officer, criticized the current regulatory framework, telling lawmakers that the patchwork of U.S. laws has allowed unregulated foreign competitors to thrive.
House Republicans responded by introducing FIT21, a complex proposal to primarily regulate cryptocurrency companies through the CFTC. Despite its potential impact, the bill does not provide additional funding for the CFTC, which has recently requested a larger budget to manage its growing responsibilities.
Rep. Glenn Thompson (R-Pa.), leader of the House Agriculture Committee overseeing the CFTC, touted the bill as a “much-needed regulatory framework” developed with extensive stakeholder feedback. Cryptocurrency lobbyists and lawyers played a significant role in drafting the proposal, with Sheila Warren, CEO of the Crypto Council for Innovation, noting that her group had “workshopped” the provisions over the past two years.
Consumer watchdogs have raised alarms that FIT21 could create major regulatory gaps, potentially allowing other financial institutions to avoid SEC regulation. Rep. Maxine Waters (D-Calif.), ranking Democrat on the House Financial Services Committee, warned that the legislation might enable cryptocurrency companies to bypass crucial compliance requirements.
Despite these concerns, the House passed FIT21 with a bipartisan 279-136 vote. The industry has also seen success in other recent legislative efforts, including votes to limit SEC policies and block the Federal Reserve from offering a digital dollar.
Reflecting on the 2008 financial crisis, Sen. Elizabeth Warren (D-Mass.) cautioned against inadequate oversight, stating, “Inviting crypto deeper into our economy without putting adequate regulations in place will end badly.”
The crypto industry, however, disputes such comparisons, arguing that Congress does not fully understand the sector. To gain further support, they have ramped up campaign contributions. McHenry, who is retiring, has received over $188,000 from the industry. He recently assured a crypto conference audience that the House would prevent future SEC chairs from imposing stringent regulations on digital assets, drawing broad support from attendees.
Other key lawmakers, including Rep. Glenn Thompson and Rep. French Hill (R-Ark.), have also received significant contributions from the industry. The three super PACs aligned with crypto interests have raised over $87 million, with plans to spend heavily in critical battleground states.
Rep. Katie Porter (D-Calif.), a proponent of financial regulations, was a recent target of crypto-funded negative advertising, contributing to her loss in a primary campaign for the Senate.
As the 2024 elections approach, the crypto industry continues to back candidates supportive of their cause. In a recent example, West Virginia State Treasurer Riley Moore, with significant support from a crypto-aligned super PAC, won the GOP nomination for a House seat.
Despite the influx of crypto money, some candidates, like Moore’s Democratic challenger Steve Wendelin, argue that the industry’s interests do not align with those of average constituents. “All these crypto guys,” Wendelin said, “are trying to buy up all these politicians.”
The crypto industry’s influence in Washington has grown significantly, posing complex challenges for lawmakers and regulators as they navigate the rapidly evolving financial landscape.
