A New Crypto Majority

Bitcoin, the first cryptocurrency, was invented in 2009 in the wake of the 2008 financial crisis as a way for consumers to fight inflation and spend money with a currency outside of government control. Since then, the cryptosphere has exploded into an industry worth more than the US housing market when it collapsed in 2008. Crypto interests have grown into a massive force with deals with traditional banks, countries using bitcoin as legal tender, and enough money to sway elections.

Regulators say that the industry is plagued by widespread fraud, has a history of mismanaging customer funds, and lacks many of the basic protections that regulate other financial products like the stock, bond, and commodity markets.

“It is a field that is rife with abuse and fraud,” said Securities and Exchange Commission (SEC) chair Gary Gensler during a June 13 Senate hearing. “And some of the leaders of this whole field are either in jail, about to go to jail, or awaiting extradition. I mean, tens of billions of dollars have been put at risk.”

But regulator pushback hasn’t slowed the industry from gaining access to lawmakers. Crypto companies and trade associations have invested heavily in lobbying, hired former congressional staffers and regulators, and developed a rating system to track how lawmakers vote.

According to Stand With Crypto, a pro-industry nonprofit dedicated to “common sense regulations for the crypto industry,” 271 pro-crypto candidates were elected to the House of Representatives earlier this month, along with nineteen pro-crypto senators. The nonprofit tracks lawmakers’ stances and doles out ratings based on how they support crypto-friendly policy.

Before the November 5 elections, forty-five senators received an A rating from Stand With Crypto. That number will likely grow to forty-eight as crypto-skeptical senators Sherrod Brown (D-OH) and Jon Tester (D-MT) lost reelection, while Senator Joe Manchin (I-WV) is retiring from his post. Brown and Manchin received F ratings from Stand With Crypto, while Tester received a C.

Five other senators have received B ratings, increasing the number of pro-crypto lawmakers in the upper chamber to fifty-three — giving them a simple majority in the Senate and making it all but certain that a number of the industry’s wish list items will be passed.

Throughout the election, crypto trading platforms like Coinbase routinely touted crypto’s widespread use among citizens, claiming that fifty-two million Americans own crypto and that “crypto is becoming an increasingly important aspect of local economies.”

However, a recent poll from the Pew Research Center found that 63 percent of Americans “say they have little to no confidence that current ways to invest in, trade, or use cryptocurrencies are reliable and safe.”

So how did the crypto industry win elections when so many people are skeptical of their products? Heaps of money and deceptive ads, according to Dennis Kelleher, president of Better Markets, a financial markets watchdog group.

“Instead of focusing their political ads on crypto, the industry funneled money to campaigns through super PACs with generic, anodyne names like Fairshake, Defend American Jobs, and Protect Progress that produced equally generic political ads,” Kelleher wrote in a November 7 opinion piece for the San Francisco Chronicle. “Crypto never came up.”

The amount of money the crypto industry threw around wasn’t necessarily to garner support for their policy initiatives but instead to scare politicians into backing their causes.

“The fear of this spending already manifested in a congressional vote on the [Financial Innovation and Technology for the 21st Century Act],” said Bartlett Naylor, financial policy adviser at the consumer advocacy organization Public Citizen, referring to legislation that would move crypto oversight to what many consider a weaker agency. “It was a crypto-enabling bill that got 71 Democrats to support it, and these Democrats did not want targets on their backs saying that they were anti-crypto.”

The “Crypto Triad”

Defend American Jobs, Fairshake, and Protect Progress, dubbed the “crypto triad,” are crypto-backed super PACs that combined spent more than $265.5 million dollars this past election cycle, according to federal disclosures reviewed by the Lever.

Fairshake spent more than $172 million supporting and opposing candidates on both sides of the aisle, while Protect Progress supported mostly Democrats and Defend American Jobs supported mostly Republicans, according to OpenSecrets, a newsroom dedicated to tracking money in politics. The candidates these groups supported all received A ratings from the nonprofit.

Defend American Jobs could not be reached for comment, and the other two groups did not respond to requests for comment.

In Ohio’s most expensive election battle ever, Defend American Jobs notched the biggest win by spending more than $40 million to oust Brown, who is the current chair of the Senate Committee on Banking, Housing, and Urban Affairs, which oversees financial policy and other issues in the upper chamber. Brown helped block the Financial Innovation and Technology for the 21st Century Act, and the pro-crypto bill will likely die in the Banking Committee. Brown will be replaced by senator-elect Bernie Moreno (R-OH), a car dealership owner and cryptocurrency and blockchain entrepreneur.

“This is what happens when you mess with the crypto army,” Cameron Winklevoss, cofounder of crypto exchange Gemini and staunch industry advocate, posted on Twitter/X after Brown lost reelection.

Winklevoss and his twin brother, Tyler, were early funders of Facebook and together started Gemini, a crypto platform, in 2015. Earlier this year, Gemini was forced to pay out more than $2 billion to its users after the exchange halted withdrawals and filed for Chapter 11 bankruptcy amid the 2022 crypto crash — during which many users lost their life savings.

The Winklevoss twins gave more than $4.9 million to Fairshake this past election cycle, according to federal data, and were public supporters of Trump.

The biggest funder of Fairshake was Coinbase, a crypto exchange whose CEO has taken a prominent advocacy role for the industry since the 2022 collapse of major crypto exchange FTX and the incarceration of its CEO, Sam Bankman-Fried, for a variety of fraud convictions. Coinbase, which did not respond to a request for comment, donated more than $129 million to the crypto triad, with $126 million going to Fairshake alone.

Last week, the New York Times reported that Coinbase has been in contact with the Trump transition team to coordinate a meeting between Lutnick, the transition team cochair, and Coinbase CEO Brian Armstrong, who has advocated for Trump to appoint Hester Peirce, a Republican SEC commissioner, to run the SEC.

Peirce, whose nickname is “Crypto Mom,” has been staunchly opposed to the SEC’s crackdowns on crypto. Pierce is reportedly being considered for SEC chair, as are Dan Gallagher, chief legal, compliance, and corporate affairs officer at Robinhood, a stock and crypto trading platform; and Mark Uyeda, another Republican SEC commissioner.

“[Peirce] would be the best choice,” Armstrong posted on Twitter/X. “Smart, fair, professional. Can work with both sides.”

Armstrong is one of the largest funders of the crypto triad, which includes crypto exchange Ripple Labs and its founder Brad Garlinghouse, as well as venture capitalists Marc Andreessen and Ben Horowitz, founders of venture capitalist firm a16z. A16z did not respond to a request for comment and Ripple directed the Lever to social media posts from its CEO.

Ripple Labs donated $48 million to the three super PACs, with $45 million going to Fairshake. Andreessen and Horowitz gave $47 million to the three groups, with $44 million going to Fairshake, according to federal data reviewed by the Lever. 

Garlinghouse has also been in contact with the Trump transition team to offer insight on personnel decisions, the New York Times reported.

“Markets have responded to Trump’s win — he’s bringing crypto back to America,” Garlinghouse posted on Twitter/X. “The incoming Congress will make sure U.S. innovation gets the regulatory clarity it deserves.”

A “Pro-Crypto Administration”

Under Gensler, the SEC — which has more than 4,600 employees and a budget of $2.1 billion — has been aggressively issuing enforcement actions against crypto platforms for failing to properly register their products as securities as well as cryptocurrency creators who fail to properly register their cryptocurrencies. In June 2023, the SEC charged Coinbase with operating an “unregistered national securities exchange, broker, and clearing agency,” among other allegations, and the case is awaiting jury trial.

Coinbase and the SEC have been dueling in court over regulatory clarity. Coinbase has claimed that the SEC needs to make more lenient rules specific to the crypto industry, while the SEC has defended its use of existing rules for regulating exchanges, claiming they are sufficient. One of Coinbase’s attorneys on the pending case is Eugene Scalia, son of former Supreme Court justice Antonin Scalia.

The SEC was also recently sued by eighteen states and a top crypto advocacy group for allegedly violating the Constitution in its attempt to regulate the industry.

The industry also wants to oust current SEC chair Gensler, who many in the cryptosphere have accused of regulating through enforcement actions.

Kristin Smith, CEO of the Blockchain Association, a pro-crypto trade association, is urging Gensler to stop all enforcement actions during the lame duck session.

“Chair Gensler should immediately halt any planned enforcement actions against crypto firms and focus instead on an orderly transition,” Smith wrote in a November 19 op-ed for Fortune magazine. “This would allow his successor to implement a regulatory framework aligned with both congressional intent and market realities.”

The crypto industry has long desired for the Commodity Futures Trading Commission (CFTC), rather than the aggressive and heavily funded SEC, to oversee the industry. The Financial Innovation and Technology for the 21st Century Act, which would have handed crypto oversight to the smaller commission, has been a focus of industry lobbying. The Blockchain Association has spent nearly $1.5 million so far this year lobbying Congress on the legislation and other issues, while companies and special interest groups across the cryptosphere have also poured millions of dollars into lobbying on the bill and other related concerns, disclosures show.

The CFTC is about a sixth the size of the SEC — just 725 employees, with an operational budget of $365 million — and has traditionally regulated trades and futures contracts for the agricultural and resource-based markets, like the projected price of corn or soy. The agency currently regulates Bitcoin because it is considered a commodity and not a security like stocks.

The commission also has far more limited investigatory tools and largely relies on tips from whistleblowers and consumer complaints to police malfeasance, said Chair Rostin Behnam.

“The message is very clear for Trump nominees, most importantly to the Securities and Exchange Commission and also to the Commodity Futures Trading Commission, that this is going to be a pro-crypto administration,” said Naylor with Public Citizen.

According to experts, the industry is also pushing for changes at the Internal Revenue Service, the Treasury Department, and other top agencies that oversee crypto-related matters and are subject to presidential appointments. Among other agency moves, crypto interests would like to see an ease of restrictions on what they claim are burdensome anti-money laundering rules and rules barring financing of human trafficking and terrorism funding, said Hays with American for Financial Reform.

Cryptocurrency funding operations have been linked to known terrorist organizations, according to the Treasury Department.

“More People Will Be Hurt”

The crypto industry and its kingpins have been strategic with their money, donating to politicians set to play pivotal roles in upcoming votes on relevant legislation. By dumping buckets of cash into the Ohio Senate race, the crypto industry helped place an ally in charge of the Senate Banking Committee, which will likely be a locus of decision-making on crypto-related bills.

Taking Brown’s place will be Sen. Tim Scott (R-SC), the current ranking member of the committee and newly elected head of the National Republican Senatorial Committee — a party fundraising committee dedicated to electing Republicans.

Scott did not face reelection this year, but still received more than $38,000 in campaign donations from Armstrong, Coinbase’s CEO, and the Winklevoss twins, federal data shows. This past summer, Scott vowed to help remove Gensler as SEC chair and to pass pro-crypto legislation authored by Sen. Cynthia Lummis (R-WY), a staunch supporter of the industry.

This past summer, Lummis introduced a bill that would require the federal government to hold a certain amount of bitcoins as a “reserve,” similar to the way the government holds gold — which could be a massive boon for bitcoin holders because it would likely cause the value of the cryptocurrency to skyrocket.

“The acquisition and long-term storage of substantial quantities of bitcoin by the United States can strengthen the financial condition of the United States, providing a hedge against economic uncertainty and monetary instability,” the bill states.

Along with advocating for the Senate to pass the Financial Innovation and Technology for the 21st Century Act, Lummis cosponsored a bill alongside New York senator Kirsten Gillibrand (D) that would put the CFTC in charge of crypto assets “that do not provide their holders with financial interest in a business entity.”

According to federal data reviewed by the  Lever, Lummis, who didn’t face reelection this cycle, received more than $47,000 in donations from Andreessen, Armstrong, Ripple Labs CEO Garlinghouse, Horowitz, and the Winklevoss twins. Gillibrand, who ran in an uncompetitive race, received more than $72,000 from Andreessen and his wife, Armstrong, Garlinghouse, and Horowitz and his wife.

“Almost all of the money that was spent in the elections came from a handful of wealthy donors from Silicon Valley,” said Hays with American for Financial Reform. “They did not come from rank-and-file voters.”

The House Financial Services Committee is the key body pushing out crypto legislation in the lower chamber, and its current chair, Rep. Patrick McHenry (R-NC), is retiring. McHenry has been a cheerleader for the industry and the reported front-runners looking to fill his spot have also received crypto donor cash.

This includes Reps. French Hill (R-AR), who counts Coinbase as one of his top donors this past election cycle; Andy Barr (R-KY), who received money from a16z, Coinbase, and Blockchain Capital LLC; Bill Huizenga (R-MI), whose top donor is crypto-affiliated venture capitalist firm a16z; and Frank Lucas (R-OK), whose second-largest donor is a16z.

The unprecedented amount of money spent by crypto groups could give the industry even greater access to the levers of power and allow the industry to become even more entrenched within mainstream banking and financial markets. The policies that crypto groups have pushed have largely been to the benefit of just a handful of influential companies and wealthy individuals, experts say, and if another crypto market implosion happens, the ripple effects could be even greater than before.

“Voters need to be aware that the policies that the crypto industry is seeking are going to benefit a few people, but they’re going to come at the expense of a lot of consumers and investors,” Hays said. “We’re going to see a bubble. It’s going to look good, and then, like past crypto bubbles, it’s going to pop eventually, and it could be bigger than last time, and more people will be hurt.”