Crypto’s Protection Racket
By Bartlett Naylor
In Hollywood crime movies, criminals regularly pay off the cops to protect their illicit trade, plots often rooted in reality. (See Serpico.) The cryptocurrency sector, or “crypto bros,” may be film buffs, because they’re using the very same script. They have deployed a record amount of money into the 2024 election cycle in an attempt to convince lawmakers to ignore crypto’s harms, with obvious results. They’ve wilted the will of politicians, especially Democrats, who must otherwise understand that crypto is a Ponzi-like scheme. (The only way to make a profit is to sell the crypto to someone willing to pay more; there are no dividends from a token that is, after all, simply a string of computer numbers.) The crypto industry’s ultimate target: dismantling the efforts by the Securities and Exchange Commission (SEC), led by brave chair Gary Gensler, to insist that crypto purveyors honor the same rules that apply to all those who invite the public to invest in their projects.
Unfortunately, the current state affairs is that a lawmaker who votes “no” on pro-crypto legislation that would disenfranchise the SEC will lead a handful of crypto zillionaires to deploy millions of dollars to defeat this scrupulous lawmaker in the coming election. Public Citizen’s Rick Claypool documented this phenomenon in two reports. As of August 2024, the crypto sector amassed $169 million to spend in support or opposition to candidates based on their crypto statements and votes. That amount is more than any other sector is spending in elections—more than Wall Street, Big Oil, and Pharma. It’s nearly half of all corporate money contributed in the 2024 election cycle. It’s 15 percent of all known corporate money contributions since the U.S. Supreme Court’s disastrous 2010 decision in Citizens United that made such unlimited corporate political spending legal (expanding the previous 1976 Buckley decision). Alone, this deluge of corporate spending constitutes an unprecedented, frightening corruption of lawmaking, the starkest example to date, as Public Citizen President Robert Weissman has opined.
To be clear, not all corporate political spending is legal. Public Citizen co-filed a complaint with Molly White alleging that contributor Coinbase violated campaign finance rules that prohibit contributions when the firm seeks or obtains a government contract.
A dangerous U.S. House bill that not only harms investor protection for crypto but any investment that uses the same digital platform called blockchain to record transactions drew 71 Democrats in support. These Democrats defied the warnings of Rep. Maxine Waters (D-Calif.) ranking member of the House Financial Services Committee and Minority Leader Hakeem Jeffries (D-N.Y.). Fear of crypto political spending arguably prevailed.
Other illicit enterprises will surely learn from the example. A sector that bilks billions from Americans will find it a cheap escape from accountability to redirect a small fraction of these ill-gotten gains to buy off enough politicians to block sensible reform. Ripple, a crypto sponsor and payment systems firm, paid a $125 million fine following an SEC case. Its otherwise sizeable $45 million in political spending so far in 2024 pales next that penalty.
Importantly, this spending doesn’t pay for political advertisements that discuss crypto. The political ads don’t mention crypto at all. Crypto policy holds little interest for most Americans. Ninety-three percent of Americans neither own nor use crypto at all, according to Federal Reserve data. And that figure rose over the last few years as more people learn about crypto. The number of people who own crypto has declined over the last several years as information about the sector has increased. Maybe these political ads avoid referencing crypto because a growing number of Americans understand this sector as all hype and little hope. A 2022 Pew poll found that about half of all crypto investors report their experience fell below expectations, and only 15 percent said they did better than anticipated. In 2023, Pew found than 88 percent of Americans familiar with crypto reported they were not confident that crypto is safe. In the sober confines of the courtroom, where lies and exaggeration aren’t tolerated, even crypto lawyers liken crypto to a Beanie Baby in order to escape SEC oversight, as opposed to an investment in Beanie Baby Inc. (Technically, Ty Inc. ) Maybe the ads don’t mention crypto because sector leaders such as Sam Bankman-Fried and Changpeng Zhao now serve prison sentences for theft or other lawbreaking connected to their crypto companies. Maybe the political ads funded by crypto avoid mentioning their product because scams abound, as detailed weekly by crypto skeptic Molly White, or recorded on an SEC website.
Instead, crypto political spending goes to advertisements with no mention of the candidate’s crypto position. Crypto political funder Fairshake– underwritten largely by venture capital firm Andreesen Horowitz, crypto firm Coinbase, Ripple and others– spent some $10 million to defeat Senate candidate Katie Porter who challenged the massive energy use by crypto. Instead of this issue, the ads deviously claimed she’d broken a promise to eschew support from disfavored industries such as Big Oil and Big Banks, an unfounded assertion. Hiding their breathless claims of crypto potential tellingly reveals they must understand this neither resonates with voters, nor finds purchase in reality
Perniciously, this crypto spending goes to super PACS legally divorced from candidate campaigns. This insulates the candidate from criticism that they may be shills for the crypto Ponzi scheme. By contrast, candidates that accept money from certain rapacious industries such as Wall Street or Big Pharma face public opprobrium for accepting this lucre, as Fairshake unfairly exploited in the Porter race.
The crypto bros openly discuss this protection racket. Said one, “Having money, unfortunately, is a big part of the way government works in the US.” Said another, “It’s now become quite risky, I would say even maybe political suicide, to be anti-crypto in DC.”
Politicians may believe they face a cruel dilemma. They can avoid taking a position on crypto or even vote to support the sector, betraying their scruples. Or they can oppose crypto, and invite the wrath of crypto-funded ads, jeopardizing their election and ability to serve average Americans on a myriad of other issues. Washington doesn’t always follow the Hollywood script where the honest cop eventually prevails over the corrupt ones.
There’s no easy, obvious escape from this dilemma.
Ultimately, Citizens United must be overturned and campaign finance reform fully realized. Until then, this Hollywood crime show becomes a horror movie series.