Erin Houchin was preparing for the worst when a mysterious and well-funded group began buying television commercials last month in her competitive career in the Indiana Congress.
Houchin assumed she would face a negative bombing, like the one that crushed her in 2016 when she ran for the same seat. But in fact, the opposite happened.
American Dream Federal Action, a super-PAC funded by a cryptocurrency CEO, saturated the district with advertisements promoting Houchin as a “Trump Tough” conservative who would “stop the Socialists in Washington.” That momentum helped him secure his victory last week in a Republican primary.
“All you can do is hold your breath,” Houchin consultant Cam Savage said when they learned of the ad purchase. “I could help you, but I’m afraid it’s over.” He added that Houchin did not seek support and had no ties to the industry other than to fill out a survey of candidates from a cryptocurrency group.
The impact of unsolicited aid shows how cryptocurrency moguls are emerging as new players in power in US politics. They are pouring millions of dollars into the primary election as they try to gain influence over members of Congress, Republicans and Democrats, who will write laws governing their industry, as well as other government officials drafting regulations.
This year, for the first time, industry executives have flooded money in federal races, spending $ 20 million so far, according to records and interviews.
It is a delicate but deliberate march of companies that by their very nature make money based in part on evading government attention.
In addition to campaign spending, more than $ 100 million has been spent lobbying on the subject since 2018 by crypto companies, as well as those that could lose if the industry became popular, according to records.
Following a very tedious path, they have retained former senior officials, such as Max Baucus, a former Montana Democratic senator who chaired the Finance Committee.
The impetus comes when the Biden administration and Congress not only consider new regulations, but also set funding levels for the agencies that will oversee them.
Treasury Secretary Janet Yellen said this week that financial regulators would soon release a report on the risks of cryptocurrencies and other digital assets.
“There are certainly a lot of risks associated with cryptocurrencies,” he said during a hearing on financial stability on Tuesday.
Officials are considering what consumer protections and financial reporting requirements to implement and how to crack down on criminals who take advantage of the anonymity the cryptocurrency offers to evade taxes, launder money and commit fraud.
“What do they want? They don’t want any regulations, or they want to help draft the regulations. What’s new?” asked Sen. Sherrod Brown, an Ohio Democrat who is an industry critic.
Cryptocurrencies are a digital asset that can be traded over the Internet without relying on the global banking system. They were promoted as a way for those with limited means to build wealth by investing in the next big thing. But they are also very speculative and often lack transparency, which substantially increases the risk.
Jan Santiago, deputy director of Global Anti-Scam, an organization that helps victims of cryptocurrency fraud, said the industry has been reluctant to control bad actors.
“Unless it affects their end result or their public reputation, I don’t think there is any financial incentive for them,” he said.
There are signs that cryptography is becoming more popular. Fidelity Investments, one of the largest providers of retirement accounts in the country, announced earlier this month that it will begin allowing investors to put bitcoins in their 401 (k) accounts.
At the same time, it increases government control.
The Securities and Exchange Commission last week unveiled a plan that would nearly double the size of its staff focused on overseeing cryptocurrency. Days later, the Justice Department accused the CEO of a cryptocurrency platform, alleging that he orchestrated a “$ 62 million global investment fraud scheme,” which is among dozens of civil and criminal cryptocurrency cases filed by federal authorities. Prosecutors say he promised generous profits but escaped with investors’ money.
Meanwhile, members of Congress and the administration have expressed concern that Russian oligarchs could resort to cryptocurrency to circumvent US sanctions imposed when Russia invaded Ukraine.
But at least one legislator has been an active participant in promoting the attractiveness of cryptographic riches.
Representative Madison Cawthorn, RN.C., promoted a new cryptocurrency called “Let’s Go Brandon,” a phrase that has become a conservative abbreviation for a vulgar insult to Joe Biden. In a video posted on Twitter, Cawthorn appears next to the founder of the cryptocurrency and emphatically states, “This is going to the moon, baby,” while urging viewers to visit the currency’s website and “get on the train.”
After an initial increase, it has fallen in value and is now worth a small fraction of a penny, the Washington Examiner first reported.
Proponents of cryptocurrency in Congress acknowledge the problems but argue that the approximately $ 2 trillion industry has matured.
“I trust that bitcoin will protect consumers,” said Wyo Republican Sen. Cynthia Lummis, who invested between $ 150,002 and $ 350,000 in the currency, according to her financial statement. “I’m not sure all cryptocurrencies protect consumers. In fact, I’m willing to bet that most of them are fraudulent.”
Others believe that concern about cryptocurrency fraud is exaggerated.
“It may be an easy conclusion for people to say that there is so much fraud in that space,” said Ashley Ebersole, a former SEC attorney. “It makes headlines, but I don’t know it’s a bigger proportion.”
In Washington, Democrats were far more hawks than Republicans. “They had me on‘ Hello, ’so they don’t need to pressure me,” said Lummis, a Republican. “Democrats are another story.”
Many proponents of cryptocurrencies have long opposed regulation. But lobbyists say it is now a settled debate and that its current goal is to persuade skeptics not to regulate too aggressively.
Perianne Boring, founder of the Digital Chamber of Commerce, has been lobbying lawmakers and federal agencies since 2017, trying to advocate for the development of accounting standards for cryptocurrencies and other digital assets and help cryptocurrency companies become listed companies.
“Because there are no standards, many companies are hesitant to touch the cryptocurrency,” said Boring, whose group has spent nearly $ 2 million putting pressure on the federal government.
Some lobbyists hope a wave of campaign spending can help, largely aimed at Democratic primaries.
“Suddenly, crypto people are happy to go and raise political funds,” said Kristin Smith, executive director of the Blockchain Association. Smith, whose group has spent about $ 4 million on lobbying since 2018. She added, “The government could really come in and really mess it up if we don’t participate constructively.”
So the industry is putting a lot of pressure on certain candidates and that fosters a sense of resentment among some Democrats. In the Atlanta suburbs, two members of the U.S. House of Representatives, Democrats Carolyn Bourdeaux and Lucy McBath, are clashing after their districts merged during the redistribution of districts.
A super PAC called Protect Our Future, funded by Sam Bankman-Fried, the 30-year-old billionaire founder of the FTX cryptocurrency exchange, has spent nearly $ 2 million on ads supporting McBath, highlighting McBath’s support for policy priorities Democrat but without saying anything about cryptocurrency.
“They don’t do it for the good of their heart. They’re doing this because they want something. And that’s to avoid regulation,” Bourdeaux said.
The FTX and McBath campaign did not respond to requests for comment. Protect Our Future, which plans to spend at least an additional $ 10 million on primary campaigns, said its spending has nothing to do with cryptocurrency regulation.
“There are a number of factors that come into our support, including voting history, political platforms, viability as a candidate, and professional and public service experience,” group chairman Michael Sadowsky said in a statement.
Cryptographic Super PACs are active in other major races, including Pennsylvania Democratic Senate primaries, where a separate banking group linked to Bankman-Fried spent $ 212,000 last week on ads supporting John Fetterman, the state’s Democratic Gov. postulates for the Senate. The ads say Fetterman will not “be hooked by lobbyists or sent by politicians.”
But overall, spending is on such a scale that it has raised questions about the motives of the industry.
“Tell all Democrats that if you have a primary, they could come in with $ 2 million. They’re definitely making a point,” said Rep. Brad Sherman, a California Democrat who is a cryptographic critic who chairs the House Subcommittee. Investor Protection, Entrepreneurship and Capital Markets. “You don’t need a good discussion in Washington if you have a lot of well-paid lobbyists and a big PAC; you just need some kind of discussion.”