Embattled by a US Securities and Exchange Commission (SEC) crackdown, crypto companies are making a renewed push on Capitol Hill to drum up support for legislation they hope will rein in the agency and provide regulatory clarity for the industry.
The Blockchain Association, Chamber of Digital Commerce, Crypto Council for Innovation, and Coinbase Global (COIN.O) are among the groups knocking on doors in Congress to build bipartisan support for a draft bill ahead of a key vote in coming weeks, said half a dozen executives and lobbyists.
While crypto companies have been expanding in Washington over the past two years to combat growing regulatory scrutiny, the latest industry scramble shows how recent high-profile SEC enforcement actions are galvanizing the crypto lobby.
“It’s another motivating factor to get up there and educate” Congress, said Cody Carbone, vice president of policy at the Chamber of Digital Commerce.
Crypto companies started out in a regulatory gray area, but the SEC has steadily asserted its authority over the industry, arguing most cryptocurrencies are securities and subject to its investor protection rules. That effort escalated last month when the SEC sued crypto exchanges Coinbase and Binance for failing to register some crypto tokens. The pair deny the allegations.
Most crypto companies dispute the SEC’s jurisdiction. They argue cryptocurrencies are more like commodities than securities, and want Congress to write laws making that clear.
Lobbyists are focused on a discussion draft bill by the Republican chairs of the House Financial Services and Agriculture committees, Patrick McHenry and Glenn Thompson respectively, which would define when a cryptocurrency is a security or a commodity. It would expand the Commodity Futures Trading Commission’s (CFTC) oversight of the crypto industry, while clarifying the SEC’s jurisdiction.
It is the most comprehensive of several crypto bills floated in recent years, with the greatest chance of becoming law, lobbyists say. That is because of the close cooperation between the committees that oversee the CFTC and SEC, which are often accused of vying for crypto oversight. With Democrats’ support, the bill could have a shot in the Senate.
“For anything to really get traction, it has to have bipartisan support. So we’re very focused on how we as an organization, and as the industry, can help facilitate that,” said Brett Quick, head of government affairs at the Crypto Council for Innovation. “It’s not a perfect bill, but it’s a really good starting point.”
McHenry and Thompson are discussing the proposal with crypto companies, regulators and Democrats, and hope the committees will vote on it before the August recess, senior Republican policy staff said. A spokesperson for Thompson said they are “coordinating closely.”
Democrats, though, are skeptical about crypto after several major players collapsed last year, including FTX. It is unclear if Maxine Waters and David Scott, the top Democrats on the Financial Services and Agriculture committees respectively, will back the bill. Both have raised concerns it would weaken the SEC’s powers.
“It proposes a cumbersome framework with inherent structural issues that will undermine the ability of our federal financial regulators to properly regulate and oversee an industry already rife with instability and fraud,” Scott said in a statement.
Still, crypto lobbyists believe other Democrats on the committees who have yet to take a stance on crypto could be persuaded that the bill would help protect American innovation and jobs, including Vicente Gonzalez and Sylvia Garcia.
“That’s where we are recommending that our members, other members of the industry, really target their advocacy efforts,” said Carbone.
Spokespeople for the SEC, CFTC, Waters and Gonzalez did not provide comment. A spokesperson for Garcia said she is paying close attention to the bill.
‘MASSIVE SETBACK’
Lobbyists acknowledge they are on the backfoot after the FTX scandal and indictment of its high-profile founder Sam Bankman-Fried badly hurt the crypto industry’s credibility.
“It was certainly a massive setback, particularly because Sam Bankman-Fried was so personally active in Washington,” said Kristin Smith, CEO of the Blockchain Association.
The industry has been trying to repair the damage. It spent around $6 million on federal lobbying in the first quarter, putting it on track for another record year after spending $21.6 million in 2022, according to OpenSecrets. Coinbase was the biggest spender during the first quarter at $700,000.
The company is also running a grassroots campaign, encouraging crypto users to contact lawmakers, said Kara Calvert, head of US policy at Coinbase. “It’s not just Coinbase that cares about crypto; it’s hundreds of thousands of people across the United States.”