Crypto Titans’ $160 Million War Chest Threatens Senate Democrats

(Bloomberg) — Crypto billionaires and their allies have amassed a $160 million war chest to protect their wealth by backing U.S. candidates who favor light-touch regulation of the embattled industry.

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The staggering amount makes the crypto industry one of the most influential players in federal campaign finance. This is money that has been proven to flip the California Senate race. Transferring the Senate majority to Republicans in November could be crucial.

Democratic control of the Senate hinges on the reelection of Banking Chairman Sherrod Brown of Ohio and Jon Tester of Montana; both are cryptocurrency skeptics who wield enormous influence over the fate of the crypto giants’ main legislative targets. They are also the only Democratic incumbents running this year in states that Donald Trump won in the last election, making them a prime target for Republicans.

Fairshake, the crypto industry’s political action committee, and allied groups have nearly doubled their funding in the past few weeks after receiving $25 million each from Ripple Labs, venture capital firm Andreessen Horowitz and Coinbase Global Inc. Billionaire twins Cameron Winklevoss and Tyler Winklevoss, one of the founders of crypto exchange Gemini, contributed $4.9 million earlier this year.

Coinbase CEO Brian Armstrong, whose estimated net worth has risen 50% so far this year to $10.8 billion as of Thursday as the crypto market rebounds, urged his followers last week not to vote for lawmakers in either party who do not support digital assets. This week, Armstrong traveled to Capitol Hill to meet with more than a dozen senators from both parties. That list included Tester, who later said he wanted to talk to other senators about a crypto regulation bill.

Faryar Shirzad, Coinbase’s chief policy officer, said the company does not control Fairshake and gave money to the PAC to support the industry’s agenda in the election.

“As an industry, we have learned that to make our voices heard, you have to show up politically,” he said. “Still, we are very, very determined to see this happen. We are very committed to this cycle and beyond. “This is just the beginning of a long road.”

Regulatory Goals

Crypto giants want to reduce oversight by the Securities and Exchange Commission, which has sued and imposed hefty fines on many major crypto players. The agency’s president, Gary Gensler, said the industry is rife with fraud and that exchanges do not properly protect their customers’ assets and often mix them with their own funds.

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Platforms like Coinbase, which the SEC sued last year for allegedly violating securities laws, have a lot to lose if the regulator’s stance continues. The SEC alleges that Coinbase made billions of dollars by illegally promoting the sale of securities and also failed to properly register as an exchange, broker and clearing house.

Fairshake spokesman Josh Vlasto said this week that the super PAC is monitoring both Brown’s and Tester’s reelection races but has not committed to spending on either race. Earlier this year, Kristin Smith, CEO of crypto trade group Blockchain Association, said the industry would be watching how Brown handles crypto’s legislative agenda.

The Democrat-led Senate has so far failed to act on the industry-friendly regulatory package that the Republican-controlled House of Representatives approved in May.

Michigan Democratic Sen. Debbie Stabenow, who also met with Armstrong this week, said she was working with senators on legislation that would govern the regulation of crypto assets by the Commodity Futures Trading Commission, crypto’s preferred regulator.

Majority Leader Chuck Schumer supports the effort, calling it “reasonable accommodation.”

Heavy Spending

Ahead of California’s open Senate primary in March, Fairshake spent $10 million to outsmart Democratic crypto-skeptic progressive Rep. Katie Porter with negative ads ahead of her defeat. A television commercial called the congresswoman a fake and successful actor while the words bully, liar and inappropriate flashed on the screen. There was no mention of crypto in the ads.

The high-visibility election influence campaign is a notable evolution from a year ago, when the crypto industry was rocked by a series of scandals and trading failures, including the late 2022 implosion of exchange giant FTX.

Sam Bankman-Fried, FTX’s former chief executive, has made significant political impact in Washington with tens of millions of dollars in donations during the 2022 elections. He was convicted of various crimes related to his management of FTX and was sentenced to 25 years in prison in March.

The effects of his political donations continue. Just last month, a federal judge sentenced one of his top aides to more than seven years in prison for making millions in political donations while at FTX, taking out loans from Alameda Research and being a straw donor for Bankman-Fried.

The crypto market has rebounded this year, thanks in large part to U.S. regulators’ approval of spot Bitcoin exchange-traded funds in January, attracting more investors to the most widely held cryptocurrency.

Side Selection

Armstrong recently promoted a crypto advocacy website that gave Brown an “F” grade and recommended Brown’s Republican opponent, Bernie Moreno, a longtime crypto advocate who founded a blockchain-based title company. The website gives Tester an average “C”.

Brown and Tester are feeling the pressure. Both senators bristled when asked about the issue last week; Brown has repeatedly said that he has talked enough about crypto with reporters and that he will not negotiate in the press.

Tester, a frequent ally of the banking industry, said he remains fairly neutral on crypto. “Once I fully understand this, we will deal with it,” he said.

Moreno, meanwhile, courted the industry with his crypto experience. “I’m facing the most anti-crypto guy in America,” he said at a recent CoinDesk conference in Austin, Texas.

Tester’s Republican opponent, Tim Sheehy, criticized the Montana senator in posts on X, accusing Tester of trying to kill crypto. Sheehy called Bitcoin and cash “FREEDOM money.”

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