Congress and Cryptocurrencies

Yesterday I wrote about how cult leader, convicted felon, and failed President Donald Trump has established a funnel for bribery utilizing cryptocurrency ventures, specifically the $TRUMP meme coin and the USD1 stablecoin. Trump's corruption has been so brazen that it has simply become impossible for Congress to ignore. Republicans, of course, are unwilling to do much more than utter a few meek words of concern — and most are not even willing to do that — but Democrats see an opportunity to push back on the President. The most important impact, however, has been to potentially delay Congressional legislation regarding stablecoins.

First, some background. As I said yesterday, cryptocurrencies, especially meme coins, are created out of nothing. They have no intrinsic value. Nevertheless, the popularity of cryptocurrencies has created several opportunities for profit. For instance, crypto exchanges benefit from transaction fees. Initial investors in new cryptocurrencies can benefit when the prices of their currencies increase. The result is that some companies and individuals have made immense amounts of money from crypto initiatives. In many cases, some of this money has been used to influence politics.

In an earlier post, I documented the $70 million in political contributions during the last election cycle spent by one crypto player, Andreessen Horowitz. Last year, Politico described crypto as "one of the biggest electoral players". According to the publication, three crypto-backed super PACs alone "spent $125 million on independent expenditures this cycle, accounting for 8 percent of all outside spending in congressional races". The crypto money has been spread among both Republicans and Democrats, creating bipartisan support for cryptocurrencies within Congress. Importantly, the public political activism of the crypto donors rarely involves mention of cryptocurrencies. For instance, if crypto PACs decide to target a Member of Congress, they don't run commercials about crypto topics or the candidate's positions on such topics. Rather, they will run ads about crime, the economy, local business issues, or almost any topic except crypto. The result is that the public is often unaware of the importance of crypto money to a candidate. Reporter Dave Weigel has said about the influence of crypto money on candidates that "With some exceptions, these aren't converts to the cause of digital currency. There's a $20 million missile pointed between their eyes and they'd rather the missile be pointed elsewhere."

The cryptocurrency industry has a love-hate relationship with government regulation. One of the most trumpeted reasons for supporting crypto is that it is free from government control. Therefore, for the most part, the industry opposes government involvement. However, in some cases, government regulation is necessary to create confidence and to open up important avenues such as banking. Therefore, a leading issue for the crypto industry has been stablecoin legislation that provides a legal umbrella for the industry without being overly intrusive. Such bills have been introduced in both the House and the Senate. The Senate version is called the GENIUS Act, while the House version is named the STABLE Act. Crypto supporters were hoping that these bills could be passed and signed into law within Trump's first 100 days. To their disappointment, that has not happened. Instead, what has happened is that Trump's involvement in crypto, and specifically stablecoins, has put a spotlight on the legislation and empowered critics. For instance, Axios reports that, "Sens. Jeff Merkley (D-Ore.) and Elizabeth Warren (D-Mass.) said in a private meeting last week, first reported by Axios, that the GENIUS Act lacks basic guardrails against corruption." Unwillingness among Democrats to be seen as enablers of Trump's corruption has left them opposed to quick passage of the legislation. There is a procedural vote scheduled for Thursday in the Senate that, at the time of this writing, is in danger of failing.

Pro-crypto Democrats have signalled an unwillingness to go along with the current bill, and it may well not pass tomorrow's vote. These Democrats have argued in favor of amendments that they believe will strengthen the legislation. It is not clear, however, that their proposed changes will do anything to slow down Trump's corrupt practices. Another strategy might be to delay action until attention on Trump's crypto involvement dies down. At any rate, it is fairly clear that were it not for Trump and the recent publicity of his crypto practices, the bill would have been in for easy sailing.

Senator Merkley has introduced a bill prohibiting presidents, lawmakers, and their families from issuing, sponsoring, or endorsing crypto assets. Several leading Democrats have signed on to the bill. However, without Republican support, the legislation is unlikely to go anywhere. Even if due to a miracle it managed to pass the Senate, it would go nowhere in the House and, even if it did, Trump would veto it. Therefore, Merkley's bill is purely symbolic. The question is whether Democrats will see the bill as providing sufficient cover for them to support the GENIUS Act. Many Democrats clearly have electoral incentives to approve the stablecoin legislation. They want to avoid the missile mentioned by Weigel. They just need to find a way to provide support without appearing to be legalizing Trump's financial shenanigans. Ultimately, co-sponsoring a meaningless bill that has no chance of passage may well be enough for them. But, symbolism does not change reality. Support for the GENIUS Act will, in fact, be a step towards putting millions of additional dollars — much of it from foreign sources — into Trump's pocket.

The cryptocurrency industry has the potential to completely corrupt our political system. It has already had a significant impact on the last election cycle, helping to elect candidates such as Senator Bernie Moreno of Ohio who was supported by over $40 million in crypto industry contributions. Essentially, none of this spending supports public advocacy of cryptocurrencies, but instead, the motivation for the money is hidden from public view. However, elected officials are fully aware of the vast sums of money that the crypto industry is capable of spending either supporting or opposing them. As such, many are eager to go along with the industry's priorities. Complicating things, though, is Trump, who has never met a grift that he won't embrace and who is exploiting crypto ventures for millions of dollars. Democratic legislators tend to be motivated more by fear than anything else and, as such, an important vote tomorrow may demonstrate whether they are more fearful of enabling Trump or of a crypto industry backlash. My bet is that support for Merkley's bill will be enough for them to go along with the GENIUS Act, thereby contributing directly to Trump's corruption while claiming that they have taken action (meaningless though it may be) to prevent Trump from benefiting.