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As Vice President Kamala Harris’ campaign embraces crypto and former President Donald Trump is hocking a new collection of NFTs, the fight to regulate the crypto industry is running up against a campaign season awash in industry cash.
While Harris has yet to announce an official position on crypto, the emergence of groups like Crypto4Harris and the announcement that a top super PAC backing Harris will accept crypto donations is signaling a shift in the Democratic approach to the growing sector.
Over the past few months, party members seem to have pivoted to a less antagonistic stance on crypto, potentially hoping to avoid a deluge of spending aimed at defeating Democrats this November. The pivot is also reflected in the bills being bandied about that are aimed at shaping the future of crypto regulation in the United States.
Sens. Kirsten Gillibrand, D-N.Y., and Cynthia Lummis, R-Wyo., have a bill that is widely seen as friendly to the crypto industry. The bill includes certain changes to the tax code that would be largely beneficial for the industry. For instance, the bill would tax mined crypto at the point of sale rather than when the miner receives the crypto.
Sen. Debbie Stabenow, D-Mich., also has a draft bipartisan bill with Sen. John Boozman, R-Ark., circulating in the Senate Agriculture, Nutrition and Forestry Committee. The push behind the bill sputtered out in July, however. She has signaled that she hopes to bring the bill back up in September, though the bill’s fate is unclear given the upcoming election season. She has also struggled to find the bipartisan support for the bill that would be required to pass it through the Senate.
Lastly, the Financial Innovation and Technology for the 21st Century Act, often called FIT21, appears to be the most likely regulatory framework to become law. The bill passed the House earlier this year with the support of 71 Democrats and Senate Majority Leader Chuck Schumer, D-N.Y., has promised to bring the bill to the floor. The bill would include some regulations on crypto exchanges, like requiring that they adhere to new record-keeping rules and meet the Securities and Exchange Commission’s standards on this front.
What all of these bills have in common, however, is that under them, most crypto would be regulated under the Commodity Futures Trading Commission (CFTC), not the Securities and Exchange Commission (SEC). This has been a central point of contention in the debate over crypto regulation because securities, regulated by the SEC, generally receive stricter oversight versus commodities.
For context, if crypto is regulated as a commodity it would be subject to the same or similar rules that control the trade of gold, crude oil and agricultural products, and the financial derivatives that are traded concerning these commodities, like futures contracts. If crypto is regulated as a security, it will be subject to the same or similar rules that control stocks, bonds and mutual funds, most notably transparency requirements.
Ladan Stewart, a former Enforcement Division staffer at the SEC who now works as a partner at White and Case, described the difference in how the officials and the crypto industry see the regulation.
“I think what the SEC would tell you is that you as the investor should have fulsome disclosures and transparency over what’s going on. What the crypto industry would tell you is that a lot of what the SEC does, including registration and disclosure requirements, does not apply to crypto,” Stewart said.
Another reason that the industry prefers regulation by the CFTC may be that the agency is much smaller than the SEC and has historically been less aggressive with enforcement action. The CFTC, in its current form, may also be a softer target for regulatory capture by the industry, depending on how it evolves after a bill is passed.
Stewart noted that the size of the CFTC is potentially subject to change, saying “if they were given the mandate to regulate all of crypto perhaps their funding would increase.” In 2022, for instance, the SEC expanded its Cyber Unit by 66 percent.
The push by some Democrats to have crypto regulated as a commodity rather than a security also represents a break with where President Joe Biden’s administration was headed earlier this year.
Current SEC Chairman Gary Gensler wants to have crypto regulated as a security and has had some success in pursuing this end. Gensler has said that “most crypto tokens are securities” and has characterized the industry as “rife with fraud, scams, bankruptcies and money laundering.”
One of the goals of the SEC has been to get crypto exchanges to register as securities trading platforms, meaning they would need to adhere to the standards of more traditional financial entities.
“The view of the crypto industry is that these types of requirements that the SEC has on things like stocks and bonds are not appropriate for crypto,” Stewart said.
The White House has also stated that it opposes FIT21 and that it looks forward to working with Congress “on developing legislation for digital assets that includes adequate guardrails for consumers and investors.” Biden did not, however, say that he would veto the bill. It’s also worth noting that if no bill on the topic becomes law, the SEC will continue to be the in fact body regulating crypto, meaning proponents of SEC enforcement may be less eager to back legislation at the moment.
Last year, there was also some appetite for strict regulation in the Senate with Sens. Elizabeth Warren, D-Mass., and Roger Marshall, R-Kan., leading a bipartisan regulatory crusade. This push produced the Digital Asset Anti-Money Laundering Act of 2023, which, if passed, would be a major change in crypto regulation. The bill, however, is focused on money laundering as opposed to creating a comprehensive regulatory scheme.
One explanation for the Democrats’ pivot in a more crypto-friendly direction is the wave of crypto money washing into politics and Democratic primaries in particular.
The marquee industry-backed committee for crypto, the Fairshake PAC, has raised some $203 million in the 2024 election cycle with major donors including companies like Coinbase and Ripple, both of which have engaged in legal battles with the SEC and the latter of which was recently ordered to pay a $125 million fine to the SEC, a small fraction of the nearly $2 billion that the SEC sought. Fairshake did not immediately respond to a request for comment, though has previously told Axios that it sees itself as standing up for crypto owners.
Supporters of the PAC include venture capital firm Andreessen Horowitz, whose founders CNBC reports plan to donate to a pro-Trump super PAC, and the Winklevoss twins, via Winklevoss Capital Management.
The spending by Fairshake PAC, however, has been squarely aimed at Democrats, spending a total of $6.7 million in favor of more industry-friendly Democratic candidates this cycle while spending $13.6 million against other Democratic candidates, according to campaign finance watchdog Open Secrets.
Some of the candidates that Fairshake PAC has worked to take down include Rep. Katie Porter, D-Calif., in her bid for the Senate in California’s Democratic primary as well as Reps. Jamaal Bowman, D-N.Y., and Cori Bush, D-Mo. The group still has $94 million in cash on hand that it can deploy between now and election day.
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For context, a Public Citizen report found that crypto spending have accounted for nearly half of all corporate spending in the 2024 election so far. Crypto corporations have spent about $119 million on federal elections, roughly 48% of all corporate spending so far.
Porter, in light of her primary defeat, launched a leadership PAC aimed at pushing back on corporate spending in primaries, the Truth to Power PAC. In its own words, the PAC is “dedicated to electing candidates who will stand up to the corporate special interests, lobbyists, and corrupt politicians.”
A spokesperson for Porter, Jordan Wong, who also serves as the director of the PAC said in an email that she would have “welcomed a thoughtful conversation with all stakeholders about how we design federal crypto policy.”
“Instead, billionaire-funded Fairshake cut off the opportunity for meaningful dialogue by choosing to spend $10 million on attack ads—not even about crypto—without ever reaching out to Katie’s campaign,” Wong said.
Truth to Power’s fundraising operation has been paltry when compared to corporate-backed committees, raising only about $450,000 this cycle.
The cost of lax crypto oversight and regulation on crypto is becoming clear. Earlier this month the FBI issued its first Cryptocurrency Fraud Report. According to the FBI, they received 69,000 complaints relating to cryptocurrency financial fraud, about 10% of all financial fraud complaints reported in 2021. Americans reported $5.6 billion in losses, accounting for 50% of all losses associated with financial fraud. These complaints have also ballooned in recent years, rising from 35,000 complaints in 2021 and around $1.5 billion in losses.
On this front, both the CFTC and the SEC would be able to go after fraud and scams in the space, and while the stricter requirements of SEC enforcement may be able to help spot fraudulent schemes before they collapse, either could potentially represent an improvement over the current system.
This is akin to the position held by Rep. Ro Khanna, D-Calif., who represents part of Silicon Valley and has at times served as a liaison between the crypto industry and Democrats in Congress.
“Democrats should approach crypto like AI, semiconductors, or any other technology that is creating jobs and helping America be competitive in the 21st century,” Khanna said in an email. “The House passed Rep. McHenry’s bipartisan FIT21 bill, which is a first step that would provide regulatory clarity and protect American consumers.”