Hello and welcome to the latest edition of the FT’s Cryptofinance newsletter. This week we’re revisiting crypto politics in Washington DC.
If you have read the Blockchain Association’s letter to members of Congress this week, you might be tempted to think the crypto industry was a reluctant participant in the world of politics.
The letter’s 80 signatories, who included Coinbase chief policy officer Faryar Shirzad and Andreessen Horowitz’s Michele Korver, were turning their fire on a crypto-focused money laundering bill co-sponsored by staunch industry critic Senator Elizabeth Warren (D-MA), claiming it imperils thousands of jobs and poses a risk to the US’s future.
“We again raise our voice, not to inject ourselves needlessly into a political world that is new to many of us, but to stand up for what our experience tells us is right,” the letter reads.
Whether or not it is standing up for what is right is for you to judge, but the one thing the letter does show is how the industry is throwing its weight around in the corridors of power in Washington DC, and doing so more openly than ever before.
This week super political action committee Fairshake — which could in theory put any amount of money it wants to work during campaign seasons and which is backed by crypto firms such as Coinbase — launched a multimillion dollar media campaign against Representative Katie Porter (D-Calif), who is running for the US Senate.
Porter’s name is not normally the first that springs to mind when one thinks of crypto’s biggest opponents: attention may instead turn to Warren or Securities and Exchange Commission chair Gary Gensler. But Porter — seen as Warren’s protégé by insiders — has long been a critic.
In 2022 Porter co-signed a letter to some of the world’s largest bitcoin mining companies, seeking information about their operations and sharply criticising the mining sector’s poor environmental record.
“Given the extraordinarily high energy usage and carbon emissions associated with bitcoin mining, mining operations raise concerns about their impacts on the global environment,” the letters read.
Fairshake evidently believes she poses enough of a threat to the industry.
“California voters deserve to know the truth about Katie Porter’s record,” the super Pac said in a statement accompanying the launch of the media campaign. “Porter has taken campaign cash from the big banks, big pharma and big oil and her super pac is spending big to mislead Californians,” Fairshake claimed, adding it is standing up for jobs and innovation in the Golden State.
Porter’s office did not respond to a request for comment.
It is the first major campaign Fairshake has embarked on since December, when the industry’s biggest hitters pooled their funds through the group to supercharge their political influence ahead of a big year for American politics.
Then, Fairshake’s stated aim was to support “pro-crypto leadership”, which in theory doesn’t have to become a partisan issue, but the group is now turning its attention to the industry’s naysayers.
“This stuff has been going on behind the scenes for years, but it is definitely more visible now,” Hilary Allen, professor of law at American University in Washington DC, told me. “The strategy has changed from trying to influence lawmakers to demonising crypto sceptics, and it’s clear that was always going to be the play.”
It’s the clearest statement of intent yet from the growing crypto lobby ahead of November’s presidential election. The media campaign against Porter also shows the group has made a conscious decision to go after its targets without focusing specifically on crypto in its attacks.
“Fairshake are doing the right thing by attacking Porter on the big issues like campaign financing,” one person familiar with the group’s strategy and leadership told me.
“That’s how you know this ad campaign is legit. Nobody cares about crypto, it doesn’t decide elections: focusing on her crypto policies would be like flushing money down the toilet,” the person added.
Since Fairshake’s curtain-raiser in December, the group’s war chest has grown from $78mn to $85mn. “It just shows how hollow the rhetoric [from the crypto industry] about operating outside the system and decentralisation has always been. This was never about anything other than profit, and profit doesn’t come without getting the ‘system’ onside,” Allen added.
But decisions await crypto’s new super Pac that could leave it looking like a partisan group. Once primary season is finished, Fairshake will need to choose who it supports and who it attacks. Given that the majority of the crypto industry supporters are Republicans, that will probably mean that in most cases it backs that party’s candidates.
“Choosing between Democrats in state races is easy. Once the primary season comes to an end, Fairshake has a big decision to make: supporting pro-crypto leadership necessarily means supporting Republicans,” the person familiar with Fairshake’s leadership and strategy also said.
What’s your take on the crypto lobby’s latest moves? As always, email me at scott.chipolina@ft.com.
Weekly highlights
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A classic crypto price story hit the wires this week when bitcoin traded above $50,000 for the first time in two years. It’s a sharp turnaround for the flagship crypto token, which fell 15 per cent in the days after US regulatory approval was given to several exchange traded funds tracking its price. But now that the ETF dust has settled, the surge to $50,000 has analysts excited. Read why here.
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Coinbase’s revenue surged 45 per cent in the last quarter, according to earnings released late on Thursday. The San Francisco-based group, which trades on the Nasdaq, reported $905mn in net revenue, up 23 per cent since the start of 2023. The exchange also reported $273mn in net income for the quarter, reversing the $79mn loss reported at the start of the year. The positive results follow the SEC’s approval of several spot bitcoin ETFs, the majority of which use Coinbase as a custodian.
Soundbite of the week: Crypto crime vs dollar crime
One of my pet peeves covering this industry is the lazy argument that more money is laundered via the US dollar and other major world currencies than bitcoin. It’s a point made by many of the sector’s defenders when they are faced with the latest criminal scandal coming out of crypto.
As often as I hear the argument, I rarely see critics make the very obvious counterpoint that cryptocurrencies punch well above their weight when you account for the scale of crypto transactions versus their real world counterparts. This week, Securities and Exchange Commission chair Gary Gensler raised the issue on CNBC’s Squawk Box.
“The US dollar, the euro or the yen, you have the whole society using it as a means of exchange. We buy our cups of coffee, we get paid in dollars or yen or euros, and you have a whole central bank and support for one currency per economic region. That, we don’t have [with crypto], so there is a very real economic difference.”
Data mining: Crypto VCs primed for a comeback
Loyal subscribers to my newsletter will recall that crypto’s ability to pull in venture capital funds fell off a cliff last year.
In 2021 and 2022, the total value of crypto deals added up to roughly $30bn. In 2023, that number fell to under $10bn, but despite a 70 per cent decline there is at least one reason for ambitious crypto start-ups to get excited.
PitchBook numbers show that in the last quarter of 2023 there was a 2.5 per cent increase in VC investment, marking the first positive quarter-on-quarter rise since the beginning of 2022. So while it’s early days, it might be that we’ve seen the bottom of the venture capital crypto market.
FT Cryptofinance is edited this week by Laurence Fletcher. Please send any thoughts and feedback to cryptofinance@ft.com.
