The crypto industry is on a roll in Washington and it’s not just because of Donald Trump.
A key ally is rising in the Democratic party and the industry just demonstrated its political might by sweeping away a long-entrenched antagonist with a flood of campaign money.
Crypto-friendly stablecoin legislation is poised to pass the Senate after years of the industry’s Capitol Hill agenda languishing. Prospects for other priorities also are improving.
Democratic Senator Kirsten Gillibrand of New York, a long-standing supporter of the crypto industry, moved up in her party’s leadership ranks to head election fundraising. She’s put her growing influence behind efforts to repeal a tax reporting rule on digital assets and pass a friendly stablecoin regulatory bill.
Cynthia Lummis of Wyoming, Senate Republicans’ leading crypto advocate and a regular partner of Gillibrand on related legislation, said the New York Democrat’s backing is pivotal. Out-of-power Democrats can still stymie legislation in the Senate, where 60 votes are needed for most bills.
“Without her, it doesn’t happen,” Lummis said, citing credibility Gillibrand has built on financial issues while representing Wall Street’s home state and the importance of bipartisan alliances in the Senate.
Gillibrand’s cross-party relationships extend to Republican Banking Committee Chairman Tim Scott, another crypto supporter who also has been tapped by his party to head up fundraising for the coming election. The two have a personal friendship and participate together in a weekly prayer luncheon. Her partnership with Lummis on crypto even included a joint fundraising committee in 2022.
Gillibrand argues the country should cultivate the emerging crypto industry rather than drive it offshore through the kind of regulatory burdens others in her party like progressive Senator Elizabeth Warren seek. Still, some level of regulation is essential, she adds.
“If we do nothing, and this industry is left to its own devices, we’ll have more collapses, we’ll have more Sam Bankman-Fried frauds,” Gillibrand said in an interview in her Senate office.
Under Trump, who has embraced crypto and even issued his own memecoin, federal regulators have backed off on cases against crypto companies. But his stance will only guide enforcement as long as he remains in the White House.
Crypto can only lock in durable changes in law with Congress’s approval. In the Senate, that will require significant support from both parties to overcome procedural obstacles.
Crypto’s new clout was on full display last week, when five Senate Democrats on the Banking Committee defied apocalyptic warnings from Warren, the panel’s top Democrat, and supported industry-backed legislation regulating privately issued stablecoins pegged to the US dollar.
It was an abrupt turnaround from previous years, when crypto skeptic Sherrod Brown, then the Banking Committee’s Democratic chairman, blocked action on industry-friendly bills Gillibrand sponsored. Brown also stood in the way of earlier efforts Bankman-Fried boosted with massive campaign contributions.
In the meantime, crypto titans pumped money into the best-funded alliance of corporate political action committees in US history — Fairshake PAC and two affiliated entities. They devoted $40 million to defeating Brown in the November election and replacing him with Republican Bernie Moreno, a blockchain entrepreneur and crypto enthusiast. The industry’s PAC spent many millions more backing several freshmen Democratic senators like Ruben Gallego of Arizona who are friendlier to crypto, per OpenSecrets data.
As the new Congress got underway, crypto’s financial power in next year’s midterm election was clear. In January, Fairshake announced that the PAC and its affiliates already had amassed a warchest of $116 million, a stunning amount so far in advance of election day.
Moreno and Gallego are now on the Banking Committee and helped send the stablecoin bill to the Senate floor, where it’s likely to get the 60 votes needed with Gillibrand’s support.
Consumer advocates warn that the industry’s financial power is overwhelming the need to protect users of digital assets from scams and the broader financial system from cascading failures.
“Money is talking very loudly,” said Jeff Hauser, executive director of the progressive watchdog group Revolving Door Project, which has been sharply critical of Gillibrand’s support for crypto. Democrats have been “freaked out” since crypto flooded money into campaigns last year. he added.
But Gillibrand dismisses the idea that crypto advocates’ election giving influences senators’ votes.
“No one should care, you know, which industries are for or against them because of their political giving,” Gillibrand said in an interview in her US Senate office. “I don’t think senators respond well to being threatened.”
Warren and other critics have pressed for a stronger backstop to protect consumers and the financial system from the failure of a major stablecoin.
Gillibrand, on the other hand, said her legislation seeks to assure stablecoins are truly stable, with requirements for one-to-one reserves with oversight at the state or federal level, and the Federal Reserve having a role as well. Reserves must be in highly liquid assets like short-term government debt or similar instruments, in an effort to prevent a run on a stablecoin.
Mainstream players such as Visa, PayPal Holdings Inc., Stripe Inc. and others are making investments in projects involving stablecoins.
Gillibrand, who spent 15 years as a securities lawyer, pitches stablecoins to her Senate colleagues as akin to the traveler’s checks tourists used to carry abroad or department store gift cards.
“It’s not meant to be a bank account. It’s not meant to have FDIC insurance,” she said. “It’s a payment system.”
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Steven T. Dennis, Bloomberg News
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