Crypto Industry Lobby Punching Above Its Weight Class

Capitol Hill

The cryptocurrency industry is on a K Street spending spree.

That’s according to consumer advocacy group Public Citizen, which said that as “cryptocurrency speculation mania” grows, “a small army of crypto lobbyists has descended on Congress.”

In its March 8 “Capital Coin” report, the group said that over the past three years, the industry has tripled the amount its spent lobbying Washington, D.C., to $9 million and quadrupled the number of lobbyists it employed to 320 in 2021.

“As a sector, crypto’s lobbying presence is only just emerging,” the report said. Its author, Public Citizen Research Director Rick Claypool, predicted that the lobbying spree has only just started — despite huge declines in the market recently.

While crypto’s annual spending on lobbyists “is dwarfed” by larger industries — pharma and health care spent $356 million last year, securities and investments spent $100 million, the NRA and gun rights groups spent more than $20 million and tobacco $31 million — it is already punching above its weight for a relatively new industry. The securities and investments sector has only 300 lobbyists, and other industries spent far less.

The three biggest spenders in 2021 were public cryptocurrency exchange Coinbase ($1.5 million), cross-border payments firm Ripple ($1.1 million) and the industry’s lobbying group, the Blockchain Association ($900,000). But other companies from other industries are pouring money in too: Meta, IBM, Citigroup, PayPal, even the Chamber of Commerce are spending to impact crypto regulation, Public Citizen said.

And as the sector is largely unregulated, the crypto industry has a lot of opinions it wants heard. Particularly now that President Biden’s March 10 executive order has given all relevant federal agencies six months to come up with a comprehensive legal framework for cryptocurrency regulation — everything from how it’s taxed to spelling out what makes a cryptocurrency a security. The latter being the key issue, as using securities as a payments currency is extremely cumbersome.

But crypto has enemies.

This week, a group of tech experts and computer scientists launched a campaign aimed at “counter-lobbying” the crypto industry’s well-funded push in D.C.

In a letter Senate Majority Leader Charles Schumer, D-N.Y., and Minority Leader Mitch McConnell, R-Ky., the group wrote, “We urge you to resist pressure from digital asset industry financiers, lobbyists and boosters to create a regulatory safe haven for these risky, flawed and unproven digital financial instruments.”

“The claims that the blockchain advocates make are not true,” Harvard lecturer Bruce Schneier, a signatory, told the Financial Times. “It’s not secure, it’s not decentralized. Any system where you forget your password and you lose your life savings is not a safe system.”

Outsize Influence

Crypto has a couple of things going for it that give it a very loud voice. One is its size: While the market capitalization of all cryptocurrencies is $1.25 trillion, after a deep bear market that started in late November, it broke above $3 trillion on Nov. 9, 2021. But — and it’s a big but — it passed $1 trillion for the first time just seven months earlier, on April 12.

Beyond that, there is the speed with which the industry has penetrated mainstream in the U.S. and abroad. According to PYMNTS April U.S. Crypto Consumer study, 23% of U.S. consumers, almost 60 million, owned digital assets sometime in the preceding 12 months. That’s up from 16% a year earlier.

See more: PYMNTS Data Show Jump in Crypto Ownership, Willingness to Spend It

But the biggest sign was in August 2021, when the industry kicked off an aggressive campaign to change a poorly worded tax provision in the president’s $1 trillion infrastructure bill that had the potential to do big damage to the industry by making crypto miners, stakers and even software developers register as brokers and turn over anti-money laundering customer data they didn’t have access to.

The industry convinced 99 U.S. senators to sign onto a last-minute change through a procedure that required unanimity — and only lost because one lawmaker who supported the position was protesting another part of the bill.

Also read: Crypto’s Influence Shows as Treasury Promises Protection for Miners, Stakers

But there are also signs that the industry is having growing pains. The exchanges Coinbase and Binance.US both broke with the Blockchain Association to go their own way.

The new Crypto Council for Innovation launched in January with members including Coinbase, Fidelity Digital Assets and venture capital firm Andresseen Horowitz — headed by former World Economic Forum executive Sheila Warren.

A wild card is FTX exchange CEO Sam Bankman-Fried, whose $5 million donation to the Biden campaign made him one of its top donors in the 2020 election cycle. The richest person in crypto according to Forbes, he has said he intends to donate $100 million or more in the 2022 cycle. While his donations are focused on far broader issues than crypto, it will still have a substantial trickle down.

Pitching a Story

After a weeklong lobbying trip that ended on May 14, Coinbase CEO Brian Armstrong tweeted that his “goal was to establish relationships and help answer questions about crypto. And to see what we can do to help the U.S. get more regulatory clarity in this space. … There is not a ton of regulatory clarity today in the U.S. because crypto is not just one thing. Some cryptos might be securities (SEC), some are commodities (CFTC), some are currencies/property (Treasury/IRS), and some are none of the above.”

But beyond the regulatory clarity angle, crypto is pitching a story about innovation, and over-heavy regulation pushing the U.S. behind other countries — a sentiment that resonates.

See here: Regulating Crypto Will Drive Innovation if Done Right, Economist Argues

“The U.S. is at a critical juncture in making holistic decisions around cryptocurrency,” Armstrong said. “Imagine the U.S. without the internet.”