Cryptocurrency industry lobbies Washington for ‘regulatory clarity’
The cryptocurrency industry is increasing its lobbying presence in Washington as it attempts to ease concerns from Congress and regulators about digital currency’s volatility, environmental impact and role in recent high-profile ransomware attacks.
As the Biden administration explores making changes to regulations governing cryptocurrency, the industry is hiring former government officials and ex-lawmakers with extensive knowledge of the regulatory process.
President Biden is expected to discuss cryptocurrency’s role in ransomware attacks at this week’s Group of Seven (G-7) meeting, Treasury Secretary Janet Yellen has proposed rules requiring increased reporting of cryptocurrency ownership and IRS Commissioner Charles Rettig told a Senate panel Tuesday that the agency needs more authority from Congress to track digital transactions.
But industry lobbyists say they’re not bracing for a crackdown on cryptocurrency or the blockchain technology powering it. Instead, they’re hopeful they can help the administration craft new regulations and garner support in Congress for bipartisan legislation favored by the industry.
“The explosive growth of the crypto industry must be matched by nimble, responsive, pro-growth laws and regulations, which do not get achieved without sustained engagement with members of Congress, regulatory agencies, and members of the administration,” said Kristin Smith, executive director of the Blockchain Association.
Industry lobbyists are asking IRS officials to clarify how various cryptocurrencies are taxed. They’re also proposing guidelines to officials at the Securities and Exchange Commission (SEC) detailing how cryptocurrency companies can introduce new products to the market without violating securities laws.
Cryptocurrency advocates have already made inroads with lawmakers. In April, the House passed the Eliminate Barriers to Innovation Act by voice vote. The measure, which the Senate has yet to take up, would establish a working group to decide how regulators define digital assets.
The fast-growing cryptocurrency industry is now pushing the U.S. to provide what it calls “regulatory clarity,” particularly after last year’s SEC lawsuit against Ripple Labs for selling its XRP token set off alarm bells. The regulator alleged the cryptocurrency was a security, not a commodity like some other tokens. Ripple Labs CEO Brad Garlinghouse bemoaned that the U.S. lacks a “single national regulatory framework” governing cryptocurrency.
Ripple Labs responded by spending $260,000 on lobbying in the first quarter of 2021, up from $100,000 during the same period last year. In February, Ripple Labs hired a lobbying firm run by former Rep. Michael Conaway (R-Texas), who in 2020 introduced a bill to regulate digital commodity exchanges that was backed by the cryptocurrency industry.
Last month, cryptocurrency exchange platform Coinbase hired Faryar Shirzad, a former George W. Bush administration official and longtime head of government affairs for Goldman Sachs, to run its lobbying team. Coinbase increased its lobbying spending by 60 percent year-over-year through the first three months of 2021.
Coinbase, along with Fidelity, Twitter CEO Jack Dorsey’s firm Square and cryptocurrency company Paradigm, launched a new lobbying group in April. The Crypto Council for Innovation (CCI) aims to counter criticism of cryptocurrency in Washington.
“We are focused on separating fact from perception in the crypto space through government and, more broadly, education resources, which is critical to helping regulators understand crypto’s ability to spur economic growth,” said Fred Ehrsam, co-founder of Paradigm.
“One of CCI’s core principles is to work closely with policymakers to correct misinformation on cryptocurrency and discuss our common ground creating more financial opportunities for people around the world.”
The industry is also getting help from former regulatory officials.
Brian Brooks, who briefly served as acting comptroller of the currency under former President Trump, took over as CEO of the cryptocurrency exchange Binance in May. During his stint in the Trump administration, Brooks released guidance allowing banks to use cryptocurrency, providing a huge boost to the industry. In March, Binance hired former Senate Finance Committee Chairman Max Baucus (D-Mont.) as a government relations adviser.
Jay Clayton, SEC chairman during the Trump administration, now provides regulatory advice to One River Asset Management, an investment firm with a large digital currency portfolio.
J. Christopher Giancarlo, head of the Commodity Futures Trading Commission (CFTC) under Trump, joined the board of crypto bank BlockFi in April. Giancarlo also launched a think tank advocating for the U.S. to launch its own digital currency.
Melissa Netram, who served as chief innovation officer at the CFTC primarily during the Trump administration, joined financial services advisory firm FS Vector last month. The company reported lobbying on issues related to “blockchain policy” for Facebook, which aims to launch its own digital currency. It also lobbied for Ripple Labs and Square.
Cryptocurrency advocates are stressing the increased popularity of digital currency and its potential for economic growth. Cryptocurrency has a market cap of more than $1.5 trillion as of this week, according to CoinMarketCap. That’s down from a peak of around $2.5 trillion in May, underscoring what many see as a sign of the industry’s volatility.
Industry lobbyists expressed concern that the recent ransomware attacks could impact the way lawmakers approach regulating cryptocurrency. Colonial Pipeline paid a hacking group $4.4 million in bitcoin to regain access to its network last month. The Justice Department said Monday it recovered $2.3 million worth of those payments but called cryptocurrency a “massive enabler” of ransomware incidents.
A report from blockchain analysis firm Chainalysis found that $350 million in cryptocurrency flowed from ransomware attacks last year, a 311 percent increase over 2019. Cryptocurrency advocates point to the report’s finding that less than 1 percent of cryptocurrency transaction volume was linked to criminal activity.
“The ransomware incidents are going to be an issue,” said one lobbyist who represents cryptocurrency interests. “But the fact is that these attacks were happening long before cryptocurrency was invented.”
Sens. Roy Blunt (R-Mo.) and Mark Warner (D-Va.) criticized the anonymity of cryptocurrency and suggested Congress should better regulate digital assets in interviews with NBC’s “Meet the Press” on Sunday.
“We have a lot of cash requirements in our country, but we haven’t figured out in the country or in the world how to trace cryptocurrency,” Blunt said. “We’ve got to do a better job here.”
Democrats such as Sen. Elizabeth Warren (Mass.) have criticized cryptocurrencies such as bitcoin for leading to an increase in emissions. Others have highlighted the wild swings in the price of digital currencies, with Senate Banking Committee Chairman Sherrod Brown (D-Ohio) urging regulators to take a hard line on cryptocurrency.
But with increased hiring and ramped up lobbying, cryptocurrency firms are counting on their allies in Congress to lead the legislative response. Members of the Congressional Blockchain Caucus are working with the industry on new legislation to regulate cryptocurrency and clarify its tax status.