U.S. Rep. Ritchie Torres, D-N.Y., called on New Yorkers to support the cryptocurrency market in a March op-ed in the New York Daily News titled, “A liberal case for cryptocurrency.”
“With a multi-billion dollar market capitalization, crypto is here to stay. It’s not going anywhere. New York City should and must embrace crypto if it is to remain the financial capital of the world,” wrote Torres, who sits on the House Financial Services Committee.
Torres failed to mention two upcoming fundraisers industry backers were throwing for him in April. Crypto investors Ben Horowitz, Anthony Albanese and Chris Dixon — leaders at venture capital firm Andreessen Horowitz — hosted the “Ritchie Torres Ethereum Fundraiser” at the swanky private nightclub Zero Bond in New York City on April 13, according to invitations viewed by CNBC. One of the invites promised “cocktails and conversation” with Torres, asking donors to contribute between $500 and $5,800 to attend the event. Another invite suggested donors contribute in ether, a type of cryptocurrency that’s trading at around $2,000.
Horowitz, Albanes and Dixon did not respond to requests for comment. An aide to Torres confirmed details of the fundraiser.
Torres’ op-ed and his ongoing support in Congress point to the crypto industry’s growing influence in Washington, D.C. Not only has the industry hired more than 200 officials and staff from the White House, Congress, Federal Reserve and political campaigns, according to the Tech Transparency Project, crypto executives have contributed more than $30 million toward federal candidates and campaigns since the start of the 2020 election cycle, according to Federal Election Commission records. Those investments have begun paying dividends as crypto executives landed hearings on Capitol Hill and helped to secure backing for amendments to President Joe Biden’s $1 trillion infrastructure bill, congressional aides say.
Money and influence
Crypto investors have established at least two new political action committees just this year, seeded with tens of millions of dollars, aimed at helping industry-friendly lawmakers get elected to Congress. Sam Bankman-Fried, CEO of crypto exchange FTX, is the primary force behind the political action committee Protect Our Future, which has raised more than $14 million and could tip the scales in House races in Ohio and Oregon.
The PAC has already endorsed Torres, who told NBC News last month that he’s received “minimal” campaign contributions from the industry.Fred Wilson, a partner at venture capital firm Union Square Ventures, which is also heavily invested in cryptocurrencies, co-hosted another fundraising event for Torres in April, the lawmaker’s aide confirmed. The aide, who asked not to be named because the events were private, noted that the Wilson fundraiser had been rescheduled to April after originally being set to take place in December.
Bankman-Fried; SkyBridge Capital founder Anthony Scaramucci, who was Trump’s short-lived communications director; and brothers Bart and Bradford Stephens, co-founders of Blockchain Capital, have donated more than $20 million combined in the 2022 election cycle so far, according to FEC records. Bankman-Fried, for instance, contributed $5 million toward pro-Biden super PAC Future Forward during the president’s successful 2020 run for the White House.
Members of the group of crypto financiers also launched and financed GMI PAC this cycle, with aims to spend $20 million to boost congressional candidates. Ryan Salame, co-CEO of FTX Digital Markets, a subsidiary of cryptocurrency exchange FTX, joined as one the super PAC’s early backers, along with CMS Holdings co-founder Dan Matuszewski. SkyBridge Capital was one of the original backers of the committee.
Bankman-Fried donated $2 million to the super PAC in January.
‘Minimal’ contributions
Torres defended his crypto-backed events in a statement to CNBC, reiterating that he’s received “minimal” contributions from those in the digital currency industry.
“During the 2020 and 2022 election cycles, I have raised well over $5 million, of which crypto represents a mere 1%— hence the term ‘minimal,’” Torres said in the statement. “Having said all that, there’s nothing shocking about individuals supporting candidates who share their policy views. That is what voters and donors typically do.”
Salame has emerged as a major campaign booster, courting lawmakers on both sides of the aisle. He launched the American Dream Federal Action PAC in April with $4 million in seed money, according to Politico. It supports ″forward-looking” Republicans “who want to protect America’s long term economic and national security by advancing smart policy decisions now,” according to the website and FEC filings.
Bankman-Fried, who declined to comment through FTX’s spokesman Peter Padovano, testified Thursday before the House Agriculture Committee at a hearing titled, “Changing Market Roles: The FTX Proposal and Trends in New Clearinghouse Models.” Scaramucci and the Stephens brothers did not respond to requests for comment. Padovano did not respond to emails requesting to speak to Salame.
‘I love FTX’
Salame donated $500,000 in April to a super PAC closely aligned with Sen. Thom Tillis, R-N.C., a member of the powerful Senate Banking Committee, FEC records show.
Tillis privately told allies “I love FTX” after he saw the donation pop up in FEC records earlier this month, according to people who overheard the remarks. They asked not to be identified because the conversation was private.
Daniel Keylin, a senior advisor to Tillis, told CNBC in an email that his boss has “voiced some concerns with the crypto industry and the need for Congress to focus on right-sizing regulations that focus on consumer protections while allowing the industry to continue innovating.”
Bankman-Fried told members of the moderate New Democrat Coalition in an April meeting that the industry would back some regulation, but it’s concerned about how some proposals will affect the larger crypto business.
Clarity
“His message has been kind of consistent with what we’ve heard from a lot of different industry players which is, ‘we need some clarity. We’re not opposing regulation. We want regulation. We want investor protection regulation. We want some clarity,’” Rep. Jim Himes, D-Conn., who is a member of the House Financial Services Committee and was at the meeting, told CNBC in an interview.
For all its growing influence, the industry was unsuccessful in getting the Biden administration to drop a provision in its $1 trillion infrastructure law that requires crypto brokers to notify the IRS through a 1099 form of crypto transactions.
“Crypto folks started to freak out,” and began flooding lawmakers’ offices to get that provision altered after the details became public last year, according to one congressional aide.
Executives, however, seem to have been successful in convincing a bipartisan group of senators to spearhead efforts in Congress that could have impacted the measure.
Senate Finance Committee ChairmanRon Wyden, D-Ore. and Senate Banking Committee ranking Republican Pat Toomey of Pennsylvania originally co-sponsored a crypto-related amendment. Sens. Cynthia Lummis, R-Wyo.; Rob Portman, R-Ohio; Mark Warner, D-Va.; and Kyrsten Sinema, D-Ariz. also signed on to crypto-tied amendments. The White House backed the Warner, Portman, and Sinema amendment.
Lummis is also a industry investor; she owns between $100,001 and $250,000 in bitcoin holdings, according to her latest annual financial disclosure report.
One provision would have excluded miners and software developers from new tax requirements imposed on crypto brokers. The other would have specifically exempted cryptocurrency miners, who participate in “proof of work” systems such as bitcoin and ether, from within the bill’s tax provisions.
The amendments never made it into the final bill that was later signed by Biden.
Dorsey gives thanks
Still, Twitter co-founder Jack Dorsey, who also founded digital payments company Block, thanked the lawmakers for their efforts. Dorsey gave his own suggestions to the lawmakers through a string of tweets that also suggested how the legislation should be written.
“To @RonWyden, @SenLummis, @SenToomey, @MarkWarner, @SenRobPortman, @SenatorSinema, @TedCruz, respective staff & everyone who’s worked on the Infrastructure Bill ‘Crypto Tax Reporting’ provision: thank you for your work to get this right. May we offer a workable simplification?” Dorsey tweeted.
Wyden said in a statement to CNBC that civil liberties groups, tech experts and “folks in Oregon” raised concerns that the provision could inadvertently regulate independent software developers.
“After studying the issue, I came to the judgement that a simple clarification of the language would give the tech community the certainty they needed, while still regulating brokers to ensure nobody can use crypto to avoid paying the taxes they owe,” he said.
A representative for Toomey declined to comment. Representatives for Lummis, Warner, Portman and Sinema did not return requests for comment.
‘Running wild’
“There’s a general awareness that the crypto market, unregulated, running wild, doing financial transactions can be a mechanism to scam, as well as to be used by criminal organizations,” Rep. John Garamendi, D-Calif., said in an interview. The industry is lobbying against a bill he co-sponsored that would subject crypto trading platforms to similar regulations as federally insured banks — in an effort to clamp down on Russians using digital currencies to evade Western sanctions.
The industry has at least one thing going in its favor: It can take years, even decades, for Congress to debate and adopt new rules regulating complex market issues.
House lawmakers need time to understand the intricacies of the crypto industry, Himes said. So there’s little chance Congress will pass legislation that reins in the industry — at least not in this congressional session, he said.
“I’ve told people we’re not at a point where I think we’re going to start passing legislation just because we’re not kind of at a point where there’s a critical mass of educated members,” Himes said. “I don’t think in this Congress we’re going to pass legislation,” he added, referring to crypto specific bills.
Congress, however, may be the least of the industry’s worries.
Crypto collapse
The Biden administration appears to be taking the lead in the pushback against crypto. The president signed an executive order earlier this year calling on the government to examine the risks and benefits of cryptocurrencies.
The Securities and Exchange Commission announced earlier this month that it’s nearly doubling its staff responsible for protecting investors in cryptocurrency markets. Treasury Secretary Janet Yellen has called for increased regulation to reduce the risk of fraud or illicit transactions.
Yellen told lawmakers Thursday that last week’s cryptocurrency sell-off that erased more than $200 billion from the crypto market illustrated the need for federal regulation.
“This is among the most painful weeks in crypto history & one we’ll reckon with for a long time to come,” Jake Chervinsky, the head of policy at the crypto lobbying group Blockchain Association, tweeted Friday.
He then encouraged policymakers that the best way to handle stablecoins is to “follow the process called for by the [executive order], develop a bipartisan consensus in Congress, adopt new regulations that are fit for purpose.”
A run on the Terra stablecoin, caused it to drop in value from roughly $8 to below 30 cents. Stablecoins are a type of cryptocurrency pegged to a specific value, usually the dollar, another currency or gold. Its parity with the dollar is what, in theory, makes it stable. However, volatility in the cryptocurrency market last week challenged that premise.
“We’ve had a real life demonstration of the risks,” Yellen said, referring to the meltdown of the TerraUSD beginning last Monday.
“We really need a regulatory framework to guard against the risks,” Yellen said. “Really, we need a comprehensive framework so that there are no gaps in the regulation.”