Ultimate Resource For Pro-Crypto Lobbying And Non-Profit Organizations
With Blockchain technology becoming more prevalent worldwide, particularly as it relates to cryptocurrencies and StableCoins, regulators continue their struggle to develop appropriate legislation that embodies an ideal balance between regulation and innovation. Ultimate Resource For Pro-Crypto Lobbying And Non-Profit Organizations
In an effort to help shape these new regulations and encourage legislation that is favorable to the crypto industry, many crypto leaders have increased their presence in Washington, primarily through lobbying efforts. (Lydia Beyoud, Bloomberg Law). In fact, lobbying efforts increased significantly during 2018 with larger crypto groups spending six-figures per quarter on lobbying alone, and crypto-specific companies filing twice as many lobbying reports in 2018 as 2017. (Id.).
While Congress and other federal lawmakers are still primarily in the information gathering phase, the crypto industries attempt to accelerate the regulatory process through increased lobbying efforts appears to be paying off. (Alex Lielacher, Brave New Coin). The Token Taxonomy Act, for example, was recently introduced to Congress in December 2018. If passed, this Act would provide favorable capital gains treatment for crypto trading and establish that crypto assets and digital tokens are not securities. (Joseph Young, Cointelegraph).
In addition to increasing their lobbying efforts, multiple crypto companies and virtual currency startups have begun banding together to form trade groups and alliances. Such alliances seek to present policymakers with a united voice and primarily focus on encouraging the development of appropriate regulations and investor-friendly tax treatment for cryptocurrencies. (Brian Fung, Washington Post).
For example, the Blockchain Association, which is based in Washington D.C., acquired over nineteen members in six months, including several top digital-currency exchanges and crypto-investment firms. The Blockchain Association aims to educate lawmakers and establish itself as the go-to lobbying organization for the crypto industry. It also seeks to develop legislation and regulations capable of protecting consumers and encouraging innovation. (Jeff Engel, Xconomy).
Lawmakers worldwide are faced with the question of how to regulate cryptocurrencies. At the same time, various companies and crypto leaders are banding together in an attempt to influence their country’s legislation and regulations. For example, CryptoUK has actively lobbied the U.K. government and the Russian Association of Cryptocurrency and Blockchain to assist the Russian government in researching, developing, and enacting appropriate cryptocurrency legislation. (Maria Lobanova, Bitcoin Magazine).
Blockchain companies in China, India, and Australia have also begun teaming up with financial institutions and banks in an effort to influence the evolving regulations surrounding cryptocurrencies and blockchain technology. (Jimmy Aki, CCN). In the end, while the crypto industry has been increasing its lobbying efforts both in Washington and abroad, with the approach and impact varying between countries, introducing and obtaining approval for favorable cryptocurrency legislation primarily continues to be an uphill battle.
Coin Center Is The Leading Non-Profit Focused On The Policy Issues Facing Cryptocurrencies. We engage in research, educate policymakers, and advocate for sensible regulatory approaches to this technology.
Based in Washington, D.C., Coin Center is the leading non-profit research and advocacy center focused on the public policy issues facing cryptocurrency and decentralized computing technologies like Bitcoin and Ethereum.
Our mission is to build a better understanding of these technologies and to promote a regulatory climate that preserves the freedom to innovate using permissionless blockchain technologies.
We do this by producing and publishing policy research from respected academics and experts, educating policymakers and the media about blockchain technology, and by engaging in advocacy for sound public policy.
Grayscale Donates $1M To Coin Center, Pledges Up To $1M More In Matched Contributions
Grayscale hopes to build off the success of Kraken’s donate-and-match program from 2018.
Grayscale Investments, the world’s largest digital-asset manager, has pledged $1 million to Coin Center, Washington, D.C.’s most influential cryptocurrency advocacy group — a move it believes will help broaden “foundational knowledge” of the industry.
The million-dollar donation was announced Monday in a press release, which also revealed Grayscale’s plan to match contributions to Coin Center through the end of February. Over that period, Grayscale plans to match donations dollar-for-dollar up to an additional $1 million.
Grayscale got the inspiration for the donate-and-match program from Kraken, the San Francisco-based exchange that managed to raise over $3 million for Coin Center in 2018. That included $2 million in direct support from Kraken.
“Coin Center has played a key role in advocating for issues that affect our ecosystem,” Grayscale told Cointelegraph.
The asset manager added that in the past two months, “Coin Center filed two strong comment letters that played a key part in correcting issues in proposed rulemaking by the Financial Crimes Enforcement Network, or FinCEN, that would have had serious negative consequences for self-hosted wallet users and the overall digital currency industry.”
Coin Center is a leading think tank focused on advancing public policy issues in the realm of digital assets and blockchain. In 2017, the advocacy group took to Congress to demonstrate to lawmakers how Bitcoin works. Last year, the organization reached out to the cryptocurrency community to help ensure that COVID-19-era lockdown measures don’t encroach on civil liberties and privacy.
When asked about the most pressing advocacy work needed for the crypto industry today, Grayscale said:
“It all comes down to education. Regulators need to have foundational knowledge of a topic to be able to make informed decisions about the bills that cross their desk. Education is both the biggest challenge and opportunity for our industry when it comes to policymakers.”
Neeraj Agrawal, Coin Center’s director of communications, told Cointelegraph he was “blown away by the community and industry’s continued support” of the advocacy group. “We are going to use these funds to continue representing Bitcoin, Ethereum, and cryptocurrency in general in D.C.,” he said.
In the coming year, Coin Center plans to remain focused on advancing financial privacy and “more sensible tax policy,” Agrawal said.
Ripple Ran Crypto’s Most Expensive Lobbying Program In 2020
Per the latest in lobbying disclosures, Ripple Labs shelled out for its lobbying on legislation looking to change the treatment of crypto under securities laws.
Ripple Labs spent $690,000 on lobbying in the United States in 2020, which still didn’t save the firm from the Securities and Exchange Commission.
Per legally mandated disclosures for 2020, Ripple’s lobbying program dwarfed those of other firms in the crypto industry. Coinbase, which looks to become the first American crypto exchange to issue public shares, spent $230,000 over the same year, while other exchanges like Binance.US, Gemini and Kraken did not report any spending on lobbying.
Ripple’s spending on lobbying is, however, relatively paltry compared with the giants of Big Tech. Facebook, for example, spent well over $5 million in just the fourth quarter of 2020.
The Diem Association, formerly known as the Libra Association, reported no lobbying activity over 2020, despite the prospective stablecoin issuer’s major struggles with regulators. In the past, it had contracted with the Washington, D.C. offices of law firm Skadden.
While the Diem Association has consistently downplayed its relationship with Facebook, Facebook maintained a $200,000 contract with lobbyists at FS Vector over 2020 to focus on blockchain issues.
Ripple was, incidentally, also an FS Vector client. The first half of 2020 also saw Ripple terminate its in-house lobbying team. It now relies solely on contracts with professional firms.
Lobbying activities that Ripple funded were aimed primarily at legislation before Congress like the Token Taxonomy Act and the Digital Commodity Exchange Act. These pieces of legislation set new rules for which digital assets are or are not securities.
Questions of securities law and crypto are obviously critical to Ripple’s business model. The firm had long faced questions as to whether XRP was in fact a security. These questions culminated in the SEC, the securities regulator in the U.S., filing a suit against Ripple Labs near the end of December 2020.
In its complaint, the SEC alleges that “the overwhelming majority of Ripple’s revenue came from its sales of XRP, and Ripple relied on those sales to fund its operations.”
Neither Ripple nor FS Vector responded to Cointelegraph’s request for comment. Representatives for Diem declined to comment.
Crypto Industry Jumps Into Lobbying In Response To FinCEN
The Blockchain Association’s ranks swell as firms look to aid its work in keeping crypto transactions peer-to-peer.
The crypto lobby is growing as more firms join the effort to fight rules that attack financial privacy.
The Blockchain Association today announced the addition of five new members, with membership now totaling 30 firms. The new members are Uniswap, Blockfi, Fireblocks, CMT Digital and Blockchain Capital.
In its tweet announcing the news, the Blockchain Association attributed the rise in membership to its work in presenting an industry response to rules from the United States Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, at the tail end of the Donald Trump administration. The association wrote, “Battling back the FinCEN process was an important step, demonstrating what is possible when we speak with one voice.”
FinCEN’s proposal involved extending $10,000 thresholds on reporting all crypto transactions and $3,000 limits on transactions with self-hosted wallets that lack identifying features. The rules, derived from the Bank Secrecy Act, would be a major interference in peer-to-peer transactions. They are, as of this week, in motion again.
The Blockchain Association, as a trade association, unites members of a single industry under a shared umbrella and lobbies Congress on behalf of mutual interests. Many firms in crypto operate their own in-house lobbying operations or individual contracts with established firms.
Other members of the crypto industry lobby have benefitted from the attention that FinCEN has drawn to policymaking. Nonprofit Coin Center recently saw a $1 million donation from Grayscale. A Coin Center representative commented on its coming priorities: “Most of our work in 2021 will likely be continuing to hold to the line for financial privacy and hopefully advancing some more sensible tax policy.”
Coin Center and the Blockchain Association were, indeed, highly visible allies in the fight against FinCEN’s proposal.
The Blockchain Association had not responded to Cointelegraph’s request for comment as of publication.
Amid Hiring Spree, Blockchain Association Adds Token Taxonomy Act Guru To Team
The former aide to Representative Davidson will join crypto’s leading trade association.
The Blockchain Association, a leading trade association and lobbying group, has hired Ron Hammond as its new director of government relations.
The Blockchain Association has been one of Washington, D.C.’s biggest advocates for the crypto industry since its launch in 2018. Executive director Kristin Smith recently appeared on Cointelegraph’s Top 100 list.
Hammond, meanwhile, cut his teeth working on crypto policy for Representative Warren Davidson, most notably the Token Taxonomy Act, which is also the origin of the relationship with the Blockchain Association.
It was at Davidson’s roundtable for crypto industry stakeholders back in September 2018 that the Blockchain Association made its inaugural public appearance, Hammond told Cointelegraph.
Subsequently, Hammond worked as a lobbyist for Ripple before going independent earlier this year.
Hammond is the Blockchain Association’s fourth new full-time hire since the new year, “More than doubling the number of permanent, non-intern employees on the team,” said Graham Newhall, the association’s communications advisor.
The Blockchain Association’s rapid growth has tracked with mass interest in lobbying from the crypto industry, especially in the wake of the Financial Crimes Enforcement Network’s proposals to restrict trading with self-hosted wallets. “We’re bursting at the seams with things we’d like to be doing,” Newhall said of the surge. “It’s been a nice confluence of new members and new team members.”
Beyond responses to FinCEN, Hammond noted that the change in presidential administration makes this a critical time to get involved with new decision makers. He said that he aims to focus on “The big issues that are being picked up from the previous administration,” namely “securities law and custody, as well as tax.”
Laws and regulations governing blockchain and cryptocurrencies have been soaring in the public consciousness, enabling those involved to get more ambitious. According to Hammond, the new goal within financial regulation is “Making sure that the Blockchain Association has not just a seat of the table, but is actually, in some cases, leading the conversation.”
At the end of January, the Blockchain Association announced the addition of 5 new members, bringing total backing up to 30 firms.
Jack Dorsey Commits $1M To Coin Center On Top Of Grayscale’s $2M Donation
The D.C.-based advocacy group just raised millions for its ongoing research and lobbying efforts. Here’s how the numbers broke down.
2021 is shaping up to be a generous year for cryptocurrency donations. On Wednesday, Coin Center, the leading cryptocurrency nonprofit in Washington, D.C., announced that it had raised millions in additional funding from high-profile names in the crypto industry.
Jerry Brito, Coin Center’s executive director, tweeted that his organization had received enough donations to claim the $1 million in matched contributions from Grayscale Investments, the world’s largest crypto fund manager.
Less than three weeks ago, Grayscale announced that it had donated $1 million to the advocacy group and pledged an additional $1 million in matched contributions. A few days later, digital currency exchange Kraken announced that it was pledging $100,000 to Coin Center.
Perhaps the most noteworthy news item came in a follow-up tweet when Brito confirmed that Twitter CEO Jack Dorsey donated $1 million to the advocacy group. “We were almost to our goal for the matching campaign when he put us over the top and then some,” he said.
Coin Center has received and incredibly generous gift of $1 million from @jack — we’re speechless.
We were almost to our goal for the matching campaign when he put us over the top and then some.
Your confidence in our work is incredibly humbling.
— Jerry Brito (@jerrybrito) February 10, 2021
Dorsey is also behind Square, whose mobile payments app lets users buy and sell Bitcoin. Square is also one of the largest corporate holders of BTC, with 4,709 units of the virtual currency on its books. That’s equivalent to nearly $210 million in today’s value.
Coin Center’s advocacy work is increasingly focused on advancing financial privacy and “sensible tax policy,” according to Neeraj Agrawal, the organization’s director of communications.
The crypto community is known for its generousity, especially in the wake of the 2017-18 bull market where millions of people around the world made a fortune investing in digital assets. Companies like The Giving Block are making it easier for organizations to accept digital currency donations.
The Giving Block recently published three job postings on its website, which reflects the growth of the crypto donations industry.
Bitcoin Core Non-Profit Gets Approved For Tax Exemption, Perks For Donors
501(3)(c) status boosts the project’s legitimacy as well as its efficiency in using donations.
A new non-profit aiming to fund Bitcoin development education and research has been approved for special tax status, conferring benefits on donors.
Brink, which launched in the fall, has been approved as a 503(c)(3) organization according to a Feb. 10 blog post. The status both exempts Brink from federal taxes and provides some interesting benefits to donors, especially considering their use of Bitcoin.
Donations to 503(c)(3) organizations in the U.S. have always been an important tax write-off, but considering the long-term confusion over the IRS seemingly asking for Bitcoin users to pay capital gains taxes on any use of Bitcoin as a payment. In its announcement, Brink says that it offers an alternative:
“Donations of long-term appreciated assets like Bitcoin generally don’t incur capital gains tax and can be claimed as an income tax deduction for the full fair-market value.”
Headed by Bitcoin core developer John Newberry, Brink runs fellowship and educational programs for new devs. Newberry told Cointelegraph that Brink had looked for the designation since its beginning: “We always planned to be a 501c3, and our corporation bylaws are completely consistent with that designation.”
The legal status as a 503(3)(c) non-profit will also open Brink up to new disclosure requirements, which Bitcoin’s innate transparency may make simpler.
However, the BTC address that Brink advertises on its Twitter feed appears to be unused. Newberry told Cointelegraph that the wallet was for a one-time donation, saying that those interested can now donate in Bitcoin and fiat here.
The firm’s Bitcoin donation window actually leads to an Open Node API. Open Node offers instant conversion from crypto to fiat, which raises the question: Does Brink not actually hold BTC donations in BTC?
Newberry did not respond to Cointelegraph’s request to specify a wallet address.
The confusion over having to pay capital gains taxes on any payment in Bitcoin had led many to call for a de minimis on the value of those payments before the IRS can come for them.
Wall Street Embrace Of Crypto Grows Closer As Employees Argue On Its Behalf
On a Zoom call with traders in January, co-President Daniel Pinto suggested he was open-minded about bitcoin.
Wall Street giants are facing increased pressure from their employees about accepting bitcoin as a legitimate asset class, CNBC reported Friday.
* Joining a Zoom call with thousands of JPMorgan Chase traders in January, co-President Daniel Pinto suggested he was open-minded about the cryptocurrency, CNBC said, citing people with knowledge of the call.
* Pinto was responding to global markets head Troy Rohrbaugh acknowledging that the bank’s own employees are increasingly asking when it will get involved in cryptocurrency.
* When subsequently clarifying his comments, Pinto iterated that the decision would be based on demand from clients.
* “The demand isn’t there yet, but I’m sure it will be at some point,” he said to CNBC.
* This news emerges hot on the heels of Goldman Sachs hosting a private forum with Mike Novogratz on Feb. 2, in which the founder of institutional crypto investment firm Galaxy Digital discussed bitcoin, ethereum and more, CNBC said.
* JPMorgan is often seen by crypto enthusiasts as the epitome of mainstream finance skepticism of cryptocurrency, CNBC said, thanks largely to comments made by CEO Jamie Dimon in 2017 when he labelled bitcoin a “fraud,” saying he would fire any traders known to be trading it.
Blockchain Association Meeting With Key Biden Staff About Regulations
The crypto advocacy group is going on a charm offensive and meeting with top representatives of the Biden administration.
U.S.-based crypto advocacy group, the Blockchain Association, is lobbying key figures in the Biden administration to advocate for more favorable regulations.
The Association’s executive director, Kristin Smith, told Fox Business the group has already met with or is in the process of scheduling meetings with high-ranking Whitehouse officials including Treasury Secretary Janet Yellen, Deputy Secretary nominee and former BlackRock executive Wally Adeyemo, along with representatives of the Treasury Department.
Citing reported comments from Yellen about how the primary utility of cryptocurrency is “illicit financing,” Smith said the association’s key aim was to assist the Treasury chief to “understand the value of crypto networks:”
Our number one priority is helping Yellen understand crypto goes beyond the financing of criminal enterprises.”
Yellen has been criticized by the crypto sector for describing Bitcoin as “an extremely inefficient way of conduction transactions,” and speculating that BTC is not “widely used as a transaction mechanism.”
Despite her apparent hostility toward Bitcoin, Yellen has expressed openness to centralized DLT, with the secretary stating a digital dollar could offer “faster, safe, and cheaper payments” than existing fiat currency last month.
Adam Traidman, CEO of crypto wallet BRD, indicated representatives of the crypto sector are “trying to work as high up the Treasury food chain as we can,” adding:
“We’re not opposed to regulation and compliance, but we need time to spur innovation and grease the skids for adoption of crypto first.”
Traidman emphasized concerns regarding regulations for wallets and crypto-to-crypto transactions, stating: “One of our main goals is to carve out crypto to crypto transactions from most regulations. If crypto transfers have to meet wire transfer rules, that will harm the industry.”
Some in the crypto community have also expressed concern regarding Joe Biden’s nominee for chairman of the Securities and Exchange Commission, Gary Gensler — who has previously described Ethereum’s 2014 ICO as an unregistered securities offering.
Earlier this week, Gensler told the Senate Banking Committee the SEC will work to ensure the crypto markets “are free of fraud and manipulation,” accusing off-shore exchanges of having been “rife with fraud.”
The Blockchain Association’s members include crypto heavyweights Circle, Binance.US, Grayscale, and Kraken.
Proposed FinCEN Rule Is A ‘Grave Threat To Personal Privacy,’ Says Coin Center
In its latest comment, the advocacy group goes after the proposed requirement to create currency transaction reports for crypto transactions.
After the U.S. Treasury Department extended the comment period for anyone to express their thoughts on a proposed crypto rule, non-profit crypto policy advocate group Coin Center has made another — and possibly final — argument to regulators.
Coin Center directed its comment to the Financial Crimes Enforcement Network, or FinCEN, over proposed rules that would require registered crypto exchanges in the U.S. to verify the identity of people using “an unhosted or otherwise covered wallet” for a transaction of more than $3,000 and report on all crypto transactions of more than $10,000.
The advocacy group referred to the proposal as “a grave threat to personal privacy, Fourth Amendment rights against warrantless search, as well as a substantial threat to continued responsible innovation.”
Specifically, Coin Center said crypto transactions should not be subject to the same requirements as those facing bank customers moving $10,000 or more in cash. The group claims that requiring institutions to create a currency transaction report, or CTR, for crypto transactions is “automated mass surveillance of innocent transactions.”
“Any transaction over $2,000 that is merely ‘relevant to a possible violation of law or regulation’ will trigger a suspicious activity report (SAR) requirement, which already applies to crypto transactions today,” said Coin Center. “Any CTR report filed without an accompanying SAR is, by definition, a report about an American resident’s entirely innocent and otherwise private financial activities.”
The Group Added:
“If FinCEN insists on further extending the gambit of warrantless mass surveillance, then it should by no account do so in a way that prejudices new technologies and the companies and individuals that use them.”
FinCEN first proposed the crypto wallet rule in December and said its website was open to comments until Jan. 4. The regulatory body later extended this deadline on Jan. 15 for an additional 14 days until its most recent — and possibly final — extension to March 29.
Since the proposed rules were filed last year, Coin Center has urged people in the crypto space to file comments to regulators, and decried the original short window of opportunity to do so.
Feedback from groups like Coin Center and the Blockchain Association could have been responsible for one or more of the extensions, which pushed the proposed wallet rule out of the former administration’s purview to that of recently confirmed Treasury Secretary Janet Yellen.
Coinbase And Square Lead New Crypto Lobbying Effort
The Crypto Council for Innovation is looking to lead the charge for sensible cryptocurrency regulations around the world.
Major stakeholders in the cryptocurrency scene, like Coinbase and Square, have formed an alliance to better relate with policymakers and regulators on the subject of crypto regulations. They are joined by other major players in the cryptocurrency scene, such as Fidelity Digital Assets and crypto-focused investment firm Paradigm.
Dubbed the Crypto Council for Innovation, the CCI aims to facilitate constructive dialogue with governments and regulatory agencies about the benefits of cryptocurrencies, according to the details published on the group’s website.
An Excerpt From The CCI’s Website Reads:
“CCI supports governments and institutions worldwide in efforts to shape and encourage the responsible regulation of crypto in a way that unlocks potential and improves lives.”
According to the CCI, effective communication with regulatory stakeholders will help to separate “fact from perception” as far as cryptocurrencies are concerned.
Indeed, anti-crypto rhetorics espoused by regulators around the world often echo misrepresentations about the crypto industry. Back in February, U.S. Treasury Secretary Janet Yellen declared that cryptos were being increasingly used for criminal activities.
Yellen is not alone in such assertions despite existing research showing that the criminal share of global cryptocurrency commerce is less than 1%.
The CCI is the latest crypto-focused lobbying effort to emerge with groups like the Blockchain Association and Coin Center also working towards sensible cryptocurrency regulations.
As previously reported by Cointelegraph, Ripple spent the most money in lobbying efforts in the United States in 2020. The company is currently fighting a securities violation lawsuit brought against the firm by the U.S. Securities and Exchange Commission.
Crypto lobbying groups have recorded some successes in fighting harsh cryptocurrency laws. In India, a coalition of industry proponents under the aegis of the Internet and Mobile Association of India, or IAMAI led the charge against the central bank ban of 2018 leading to a reversal of the diktat by the Supreme Court in March 2020.
Members of the IAMAI are currently trying to convince government officials to adopt a more nuanced approach to crypto regulations in India.
Crypto Lobby Groups Are Gaining Traction In Washington As The Threat Of Regulatory Bottleneck Looms
The blockchain industry is looking to shed the negative association between digital assets and crime as the threat of additional regulatory oversight looms.
Crypto-focused lobbying groups in Washington, DC are playing an increasingly vital role in reorienting policymakers away from the view that digital currencies are used primarily for illegal transactions. Now, they are preparing for, potentially, their biggest battle yet.
The Blockchain Association, an industry trade group representing crypto firms, has added 10 members to its brass since December 2020, bringing its total to 34. Kristin Smith, the group’s executive director, told Bloomberg that the association’s members are extremely concerned about federal regulators clamping down on the industry over misplaced fears.
“We in the industry think it’s hugely problematic,” she said, adding that “It misses the entire point of this innovation.”
Smith was commenting on recent proposals by the Financial Action Task Force and Treasury Department to increase surveillance of the cryptocurrency market over concerns about money laundering and other illicit activities. The proposals, which could be finalized later this year, would place more burdens on investors and blockchain networks.
Coin Center, a leading DC-based advocacy group, is raising money in preparation for a lengthy lobbying battle or lawsuit over the proposed regulations. Jeremey Brito, the group’s executive director, told Bloomberg:
“Our job is to say absolutely there is a real risk here and that we all need to work together, but don’t throw away the baby with the bathwater.”
Grayscale, the world’s largest digital asset manager, donated $2 million to Con Center earlier this year. Twitter CEO Jack Dorsey also contributed $1 million to the advocacy group.
Despite concerns about sweeping government regulations, the threat of an outright ban on digital assets is long gone, according to billionaire investor Tyler Winklevoss. In a recent What Bitcoin Did podcast episode with Peter McCormack, Winklevoss said:
“I think that the U.S. will never outlaw Bitcoin. There’s too much precedent that’s been set in the courts. The Coinflip order, which was a CFTC [Commodity Futures Trading Commission] enforcement action which was upheld in the courts, considered Bitcoin a commodity like gold.”
Digital assets have reentered public discourse over the past six months as Bitcoin (BTC) charted new all-time highs and major institutions like Morgan Stanley and MassMutual got involved. On the corporate side, Tesla and MicroStrategy have added billions of dollars worth of BTC to their balance sheets — moves that many believe will normalize digital-asset exposure moving forward.
JPMorgan Chase, Citigroup, Goldman Sachs and BlackRock have all recognized Bitcoin’s emergence as a new asset class and, in some cases, one that could challenge gold for store-of-value supremacy.
Cryptocurrencies have reached several major milestones this year. The collective market capitalization of all digital assets topped $1 trillion in January before doubling less than three months later.
The Accidental Crypto Lobbyist
Our reporter contacts state lawmakers for clarification and ends up inadvertently reshaping a bill.
I think I just saved stablecoin issuers in West Virginia.
I know, that’s a bold statement. And especially by a journalist whose job is to report on events, not influence them. For the record: I was NOT trying to influence the legislative process here.
But I think I did. And the episode speaks to the surprising malleability of legislators when, after a year of crafting massive legislation, you catch them off guard. Allow me to explain.
West Virginia’s Legislature is considering a sweeping overhaul to the state’s criminal code – its biggest in decades – with a package delegates have been sharpening for nearly a year. Their 400-page behemoth would strengthen drug sentencing, expand homicide provisions, modernize anti-hacking statutes and establish a tiered system for misdemeanors and felonies.
Pretty normal fare for a criminal code overhaul. But I noticed something strange last week in House Bill 2017. It seemed to ban people from issuing or transacting in cryptocurrencies not sanctioned by the 38th most populous state in the U.S.
“If any person shall, without authority of law, issue any note, cryptocurrency, or other security purporting that money or other thing of value is payable by or on behalf of such person, with intent thereby to create a circulating medium, he or she shall be guilty of a misdemeanor,” read the section 61-4-7 of the bill. (Cryptocurrency, bolded here, was new to the “unauthorized currency” provision).
Huh? Was this a crypto ban? I wasn’t sure. The following section, 61-4-8, only made me more confused:
“If any person … shall knowingly pass or receive in payment any such note, cryptocurrency, or security, he or she shall be guilty of a Class 3 misdemeanor.”
Sure looked like a crypto ban to me. But I’m no lawyer. Hell, I haven’t even ordered those LSAT study books yet. (Sorry, Mom!) So I emailed a few real attorneys to hear their take.
Drew Hinkes of Carlton Fields responded first. “This bill would benefit from further clarification,” he began. Not a very promising start.
HB 2017’s “very curious definition” of cryptocurrency was unlikely to spell a sweeping ban on digital assets or any crypto with supposed intrinsic value (bitcoin (BTC, -1.18%)), Hinkes explained. Rather, it seemed tailored to “cryptocurrencies that promise payment to the holder,” or perhaps asset-backed stablecoins with redeemable reserves.
(My favorite example of an asset-backed, redeemable crypto is sardine coin. Holders can exchange their tokens for a vintage tin of salty fish. That European initial coin offering is, alas, not available to U.S. residents. More relevant are dollar-pegged stablecoins like USDT (+0.02%), USDC (+0.06%) and DAI (-0.04%), which are backed by fiat currency in a brick-and-mortar bank and/or other assets and boast a combined market capitalization of $56 billion, or 77% of West Virginia’s annual GDP.)
Carol Van Cleef of Bradley was my next stop. She deemed the proposal “disturbing” and said it would render authorized stablecoins “as a nonfactor in payments.”
“When I see something like this – my first question is where did it come from, who is behind and why,” she said.
I agreed. So I found the emails of the bill’s 11 co-sponsors and contacted them en masse.
I did not realize it then, but Wednesday was set to be a banner day for HB 2017. After nearly a year of drafting and committee work, it was headed for final vote on third reading. The cryptocurrency rider had been in there from the start and it was just hours away from passing.
‘Your contribution is appreciated’
I woke up to a cordial email from Delegate Bryan Ward. “Good morning, sir,” wrote the first-term member. “This bill was voluminous and technical amendments are forthcoming in an effort to perfect the language.”
“An amendment, specifically addressing your concern relating to cryptocurrency will be offered by Delegate Daniel Linville. I’m fortunate to have colleagues here in the house of delegates with broad ranging expertises. Your contribution to the process of crafting the best bill is appreciated.”
What? My contribution to the crafting of a better bill? I am not a constituent of West Virginia nor am I a registered lobbyist. I know how to report, not how to influence. I was not sure what was going on.
Linville, who chairs the Technology and Infrastructure Committee, emailed me the amendment he would propose on the floor of the house of delegates later that day. It would strike all mentions of cryptocurrency from section 61-4-7.
“This should be taken up within the next few hours,” he said.
So I tuned into the livestream on YouTube. Indeed, a few hours later, Linville asked his fellow delegates to adopt his amendment. He said he had met with the bill’s co-sponsor that morning and decided to excise cryptocurrency from the law. Better to remove a few words than pass a bill suggesting crypto was counterfeit money, he said. Would his fellow delegates sign on?
“Aye,” agreed the chamber by voice vote, adopting the amendment. Nobody stood in his way.
HB 2017 then passed the House by a vote of 76 to 22.
Something Is Amiss
Shortly after the bill’s passage I began reviewing my notes. It sure seemed that I had acted like a last-minute lobbyist for the cryptocurrency industry – though I hadn’t meant to do it. I had found a bill confusing, interviewed lawyers who also found the bill confusing, and then dug up the email addresses of 11 politicians who, when prompted, found their bill confusing, too.
“This bill was voluminous and technical amendments are forthcoming in an effort to perfect the language,” Ward had said to me.“Your contribution to the process of crafting the best bill is appreciated.”
(I have emailed Linville and Ward to ask if the amendment was being planned even before I reached out, but have not heard back.)
All this happened in the final moments before the bill’s passage in the house. On the third reading.
But it’s a good thing for the crypto industry I am not a lobbyist because, despite torpedoing the stablecoin provision without even trying, I still wouldn’t be a very effective one. Remember, there were two sections of this bill in question, the first (61-4-7) to make unauthorized stablecoin issuance illegal and a second (61-4-8) to bar the transfer of such cryptos between parties.
Also remember: An amendment “specifically addressing my concern” had been offered and approved. I had only mentioned 61-4-7 in my email. Likewise, the amendment only did away with the ban in cryptocurrency issuance. Which means that if the bill is enacted into law, it would still … ban crypto transfers?
I’m really not sure. And neither was Hinkes, the lawyer who thought the bill’s previous rendition warranted a rewrite.
“Without ‘cryptocurrency’ in [section 7], [section 8] makes less sense,” he told me, pointing out the statute’s “any such” clause references a cryptocurrency that’s no longer there. Perhaps the courts could enforce the ghost clause through complicated judicial jiu-jitsu, but probably not.
“Again, this bill as amended would benefit from further clarity,” he said.
The bill is now up for consideration in the West Virginia Senate.
CORRECTION (4/7/21 18:46 UTC): This article has been updated to reflect that Carol Van Cleef’s comments were directed at “authorized” cryptocurrencies.
Crypto Lobby Plans To Shake Reputation As Criminals’ Currency
Even as cryptocurrencies steadily gain support on Wall Street, they’re still regarded by regulators as a tool for criminals to conceal shady transactions — posing a challenge to the nascent industry as it seeks to win wider respect.
That’s creating a potentially lucrative opportunity for new groups in Washington advocating for digital currencies. Some prominent crypto lobbying organizations say they’ve increased their membership and raised millions of dollars to help improve the industry’s image.
While banks including Goldman Sachs Group Inc. are exploring digital assets for certain clients, recent actions by regulators show an uncertain road ahead. Late last month, an international anti-fraud watchdog proposed regulations that crypto advocates say would squash a large part of their industry.
The recommendations, from the 39-member Financial Action Task Force, would increase surveillance of many cryptocurrency transactions. They come on the heels of a similar anti-money-laundering proposal from the U.S. Treasury Department that could be finalized later this year. Many crypto proponents are opposed to increased surveillance.
The Treasury and FATF proposals come as Bitcoin has rocketed into the financial mainstream. On Monday, the virtual currency traded at about $59,000, more than twice its level at the end of 2020 and more than eight times its level last April. Other cryptocurrencies such as ether have seen similar gains.
The soaring prices have given ammunition to Bitcoin lobbying groups emerging in Washington. In the past three months, they’ve used the new regulatory pushes to raise millions of dollars in funding and convince cryptocurrency firms to establish a Washington presence.
Even as the finance world has embraced cryptocurrencies and pumped up their prices, they’ve struggled to shake their reputation as a tool allowing thieves and drug dealers to hide illegal transactions. Some crypto advocates say disabusing regulators of that perception is the biggest challenge virtual assets face.
“We in the industry think it’s hugely problematic,” said Blockchain Association executive director Kristin Smith of the proposed rules. She said they would put heavy surveillance burdens on investors and operators of cryptocurrency networks and make it difficult for some services to remain decentralized.
“It misses the entire point of this innovation,” Smith said.
Since December, the Blockchain Association, a trade group for crypto firms, has added 10 members, bringing its total to 34, Smith said. The association, which is less than three years old, has more than doubled its employees to seven. She said the association’s members, which include crypto-exchange Binance.US and Ripple Labs, have discussed making large contributions to the association to ramp up hiring and buy advertising to polish Bitcoin’s image.
Coin Center, a Washington-based think tank and cryptocurrency advocacy group, since December has garnered more than $300,000 through a fundraising drive with mostly individual donors contributing small amounts of cryptocurrency.
It also received $2 million from crypto-investment firm Grayscale Investments LLC and $1 million from Twitter-founder Jack Dorsey, whose other firm, Square Inc., recently made a $30 million investment in Bitcoin.
Coin Center executive director Jerry Brito said that, for now, his group is saving the money as a war chest in case it needs to fight a larger lobbying battle or file a lawsuit over the new regulations.
“Our job is to say absolutely there is a real risk here and that we all need to work together, but don’t throw away the baby with the bathwater,” Brito said.
One of Bitcoin’s earliest uses was as the only accepted currency on a website for drugs and other illicit goods known as the “Silk Road,” which the Federal Bureau of Investigation shut down in 2013. More recently, Bitcoin has been the preferred payment method of hackers locking up computer data in so-called ransomware attacks.
Even January’s riots at the U.S. Capitol had a Bitcoin connection. A month before the attacks, a now-deceased computer programmer in France sent more than $500,000-worth of the cryptocurrency to far-right groups that helped stage the assault.
Bitcoin’s defenders say illicit activity has become less of an issue. Bitcoin wallets are only identified by a string of characters, but the “blockchain” ledger that records Bitcoin transactions is public, allowing authorities to follow the money trail when wallet owners attempt to convert Bitcoin into dollars. They can see that a wallet is hosted by Coinbase, for example, and subpoena Coinbase for the owner’s name.
Chainalysis, a Bitcoin forensics firm that works with law enforcement agencies, says illicit activity makes up a decreasing proportion of Bitcoin transactions, though there are still problem areas like the ransomware attacks.
“Law enforcement investigators are becoming increasingly savvy” in tracking criminal activity on Bitcoin’s network, said Jesse Spiro, Chainalysis’ chief government affairs officer.
Still, world governments have remained wary. A government official in India earlier this year said the country would move to ban cryptocurrencies. Nigeria and China have also cracked down on purchases.
In the U.S., Representative Brad Sherman, a California Democrat, wants to bar Bitcoin’s use by Americans. Though Sherman’s idea hasn’t taken root, in March billionaire investor Ray Dalio of Bridgewater Associates LP said he viewed it as a high probability that the U.S. would at some point ban its use.
The regulatory threats aren’t stopping some banks from tiptoeing into the market. Goldman Sachs in March said it was close to offering investment vehicles for digital assets to clients of its private wealth management unit. Morgan Stanley is planning to offer its clients access to cryptocurrency funds. So far, the largest U.S. banks still don’t let their clients hold Bitcoin directly.
At the heart of the Treasury and FATF proposals are recommendations to expand how much governments monitor cryptocurrency transactions. Both proposals would require financial firms to make more frequent reports on large transactions and to identify the counterparties of their customers on certain activities.
Opponents of the FATF proposal say it would make impossible several recent cryptocurrency innovations. For example, the past year has seen explosive growth of “smart contracts” built on the Ethereum network, an open-source crypto platform, that allow for the automatic enforcement of transactions without a financial firm ever taking custody of the cryptocurrency.
The FATF proposal would require the operators of those networks to keep track of the activity of their users, something many of the networks don’t have the resources to carry out.
The Treasury proposal, for which the official comment period ended on March 29, drew thousands of comments from both small Bitcoin investors and major financial firms. Some lobbyists had said they were optimistic Treasury officials would scale back at least some of the rules.
Now, the FATF proposal is giving them new reason to worry. FATF’s recommendations aren’t binding on members, which include the U.S., the European Union and other major economies, but are considered a blueprint for anti-fraud regulators. In some cases, not following the recommendations can lead to sanctions or trade limits.
The FATF rule would require participants in a cryptocurrency network, even if they didn’t have custody of any currency, to register with regulators and report their activities — and those of their users — to authorities.
Such participants could include people like software developers who have created decentralized cryptocurrency exchanges or who operate certain kinds of nodes that process transfers over the Bitcoin network, according to Coin Center.
Coin Center wrote that the recommendations amounted to “mass warrantless surveillance.”
FATF is taking comments on its new proposal through Apr. 20 and could finalize it later this year.
Smith said that FATF, which is based in Paris, doesn’t have an open process for its recommendations, which made the proposal more of a surprise to the industry and harder to affect through lobbying. FATF is accepting comments on the proposal, and Smith said the Blockchain Association and some of its members plan to submit comments.
Smith said her group also plans to reach out to officials at some of FATF’s member countries, including the U.S. and Japan, which co-chair a virtual-asset working group at FATF, as well as to Singapore, which has been especially proactive in trying to grow its cryptocurrency industry.
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