US crypto industry comes to Washington, but faces uphill struggle

Crypto companies have been expanding in Washington to combat growing regulatory scrutiny, especially from the SEC which says the industry has been flouting its rules

Crypto companies are descending on Capitol Hill on Wednesday, but their push to advance industry-friendly laws is likely to be overshadowed by a fight over the federal budget and a Senate crackdown on the use of crypto for money laundering.

Dozens of executives from digital asset companies are meeting with lawmakers and their staff on Wednesday as part of a grassroots advocacy campaign organized by Coinbase, the biggest U.S. crypto exchange, and Stand With Crypto, a non-profit it founded.

The House Financial Services Committee in July passed two major bills that would help provide clarity over which existing financial rules apply to the industry, and crypto lobbyists hope they can convince lawmakers to advance those through Congress.

But with lawmakers focused on averting a government shutdown and other competing bills that must pass this year, including the Farm Bill and National Defense Authorization Act (NDAA), the industry may struggle to be heard.

"There's a mind-boggling number of competing areas but ... we need to keep pounding the table," said Katherine Dowling, general counsel and chief compliance officer at Bitwise, a crypto investment manager. The company is one of several pushing for the U.S. Securities and Exchange Commission to approve a spot bitcoin exchange-traded fund.

Crypto companies have been expanding in Washington to combat growing regulatory scrutiny, especially from the SEC which says the industry has been flouting its rules. Lobbying escalated after the SEC sued Coinbase and its rival Binance in June for allegedly failing to register tokens, claims they deny.

The industry spent nearly $13 million on federal lobbying in the first half of 2023, putting it on track for another record year after spending $21.6 million in 2022, new data provided by OpenSecrets to Reuters showed. Coinbase led the pack at $1.4 million.

The crypto delegation on Wednesday includes Coinbase CEO Brian Armstrong, who is meeting with Democrats and Republicans from both chambers of Congress, a spokesperson said. It also includes an executive from OpenSea, the top non-fungible token marketplace.

"Everybody wants to make sure that what they're doing isn't going to be erased by the government," said Kara Calvert, head of U.S. policy at Coinbase, referring to the crypto industry.

An OpenSea spokesperson said the company was excited that policymakers have taken an interest in NFTs, and "hope(s) that a collaborative approach" to regulation will foster innovation and protect users.

Coinbase also this month launched a media campaign which will include advertisements in Washington and calls-to-action on its own platform for crypto users to urge their members of Congress to pass crypto legislation.

The outcome is uncertain, said Mark Hays, senior policy analyst at Americans for Financial Reform and Demand Progress.

"It's not clear to me whether the industry's efforts to bootstrap a crypto grassroots campaign out of nowhere is going to translate into something that's politically impactful."

'LAST THING WE NEED'

The July bills would define when a cryptocurrency is a security or a commodity, curtailing the SEC's authority. Another bill would create federal rules for stablecoins, tokens pegged to a traditional asset.

The next step is consideration by the full House, or for the bills to be introduced in the Senate. A House vote before year-end is possible, but the outlook is dimmer in the Senate, where industry-friendly crypto bills have failed to gain traction.

Instead, both sides of the aisle are focused on curbing the use of crypto in money laundering and terrorist financing. The Senate in July passed its version of the NDAA, which included an amendment increasing scrutiny of anonymous crypto transactions.

And Senate Banking Committee Chair Sherrod Brown of Ohio has shown little interest in making it a priority to advance the House bills.

"The last thing we need is for the crypto industry to write their own rulebook — too many Ohioans have been burned by fraud and scams," said Brown in a statement to Reuters.

"We need a framework of rules for crypto that protects our economy and protects Ohioans' hard-earned money."

Still, Coinbase is stepping up its efforts in Ohio, where Brown is facing re-election next year, with grassroots events raising awareness of the industry's role in the local economy.

Without Brown's support, industry-backed crypto legislation in the near-term remains unlikely, said Ian Katz, managing director of policy research firm Capital Alpha Partners. "If it doesn't seem urgent, and the chairman of the relevant committee isn't that into it, it's hard to see it happening."