Crypto Firms, Executives Step Up Campaign Donations, Lobbying Ahead of Midterms

The push comes against a backdrop of depressed cryptocurrency prices and intensifying scrutiny from regulators who say crypto issuers and lending platforms are broadly out of compliance with laws designed to protect investors and prevent money laundering.

The Securities and Exchange Commission is investigating a number of trading platforms, including

Coinbase Global Inc.,

for operating an unregistered securities exchange, and is litigating a case against Ripple Labs Inc., the backer of a popular token. It has brought close to 100 enforcement actions against crypto entities and recently doubled the size of its crypto-focused team.

“We’re going to…continue to be a cop on the beat,” SEC Chairman

Gary Gensler

said in October. “The law is pretty clear.”

The industry’s solution: Persuade Congress to change the law.

Amid the lobbying push, members of Congress from both parties have introduced bills that the crypto industry would like to see pass. One would write exemptions into securities and tax laws for cryptocurrencies. Another would assign oversight of the two largest tokens, bitcoin and ether, to a regulator that would have to write rules from scratch.

“These midterms are the most important elections for this crypto community,” said Hermine Wong, a policy director at Coinbase, the largest U.S. crypto-trading platform. “We believe that the legislators who will be coming in this cycle will be able to finally draft legislation to govern this space.”

Wealthy investors and large companies have long used lobbyists and campaign donations to win influence in Washington. What sets the crypto industry apart, observers say, is that the stakes are existential. That has led to fast growth in political spending and unusually aggressive strategies to sway lawmakers.

Crypto’s political contributions ahead of the midterms exceed those of the defense and auto industries combined, according to OpenSecrets, although they still trail some other sectors, such as private equity. Official campaigns and outside spending groups that received the money have used it to buy television, radio and digital ads, mail pamphlets, and provide yard signs, polling services and text messages.

Trading platform FTX Trading Ltd. has become the third-largest source of 2022 campaign contributions after Democratic megadonor

George Soros’s

firm and cardboard-box manufacturer Uline.

A boom in token prices last year enabled the crypto industry to set aside large amounts of cash for political activities. In a little more than a decade, cryptocurrencies rose from a concept to a $3 trillion dollar market in November 2021, before crashing below $1 trillion this year.

By helping to get enough crypto-friendly lawmakers elected in November, the industry is hoping to push favorable legislation across the finish line quickly.

Via its app, Coinbase has sent push notifications encouraging users to register to vote, and is in the process of rolling out a scorecard on its platform that rates U.S. senators and representatives based on their crypto sentiment. While such strategies are often used by interest groups like the National Rifle Association to appeal to single-issue voters, they are uncommon for individual companies.

“It’s life or death, and so they are accelerating to a level of aggression that is consistent with the fact that they are in a legal corner,” said Jeff Hauser, director of the Revolving Door Project, a group that advocates for less corporate influence on politics.

One crypto-focused group, GMI PAC Inc., has raised $11.5 million from crypto investors including FTX co-founder

Sam Bankman-Fried,

stablecoin issuer Circle Internet Financial Inc. and venture-capital firm Andreessen Horowitz. GMI said 15 of the 18 congressional candidates it supported during primary elections won their races. It focused its spending on primaries in congressional districts without an incumbent running and where one party or the other is strongly favored to win in November.

Contributions make a bigger difference in such races, where overall spending tends to be lower than in contested races.

“You’re not just helping one candidate—you’re making a statement to everybody,” said Rep.

Brad Sherman

(D., Calif.), who has pushed a tough line on crypto. “The vast majority of us don’t face a well-funded primary opponent, and anyone who does face a well-funded primary opponent could lose.”

Not all of the spending has been effective. A separate group funded mostly by Mr. Bankman-Fried spent more than $11 million backing an Oregon political novice who lost his primary.

Some sitting lawmakers also have received crypto-tied donations.

Senate Majority Leader

Chuck Schumer

(D., N.Y.) has received more than $100,000 from individuals at Coinbase, Digital Currency Group and Ripple. Sen.

Debbie Stabenow

(D., Mich.) and Sen.

John Boozman

(R., Ark.)—the leaders of the Senate Agriculture Committee—who recently co-sponsored legislation that garnered crypto-industry support, each received more than $20,000 from employees of FTX and Ripple.

Sen. Tim Scott (R., S.C.), who would chair the Senate Banking Committee if Republicans win control, has received more than $20,000 from executives of crypto-investment firm Paradigm. Rep.

Patrick McHenry

(R., N.C.), who would lead the House Committee on Financial Services if Republicans win that chamber, has received nearly $50,000 from individuals at Coinbase, Ripple, Bitwise Asset Management and Blockchain Capital.

A spokesman for Mr. Boozman declined to comment on the donations but said the senator has called for more consumer protections in crypto. Representatives of Messrs. McHenry and Scott declined to comment. Mr. Schumer and Ms. Stabenow didn’t respond to repeated requests for comment.

Mr. Bankman-Fried, a billionaire, said he visits Washington at least once a month, occasionally dropping into industry-sponsored happy hours and mingling with junior congressional aides.

“It’s all happening at once,” Mr. Bankman-Fried said at an event in October at the Institute of International Finance in downtown Washington. “We’re kind of running all over the town.”

Write to Paul Kiernan at [email protected]