Crypto and blockchain-related congressional lobbying took off in 2018 as some of the industry’s top players realized they should go to Washington before Washington comes for them.
Crypto exchange Coinbase, Inc., for example, increased its spending for lobbyists at Franklin Square Group to $50,000 in each of the last two quarters of 2018, a 66 percent increase from the last two quarters of 2017. At least 53 companies or trade groups reported lobbying on crypto- and blockchain-related issues at the end of 2018, compared to just 25 at the end of 2017, according to a Bloomberg Government analysis of lobbying disclosures.
The increased expenditures come as the industry is looking to shape potential legislation or regulatory decisions from agencies like the Internal Revenue Service and the Securities and Exchange Commission that could bolster or disrupt their business plans. Many firms are also eager to differentiate themselves from bad actors or practices within the broader crypto and blockchain community.
All that outreach takes lobbying power and dollars.
Lobbying expenditures ranged from a few thousand dollars a quarter for small startups to some crypto trade groups, like the newly minted Blockchain Association, reporting six-figure quarterly spending. Established heavyweights like the U.S. Chamber of Commerce, International Business Machines Corp. and Walmart Inc. are also lobbying about crypto issues, though exact amounts aren’t listed on their six- or even seven-figure-spending quarterly disclosures covering dozens of policy topics.
But lobbying reports by crypto- and blockchain-specific companies and trade groups help illustrate the growth of an industry looking to establish a foothold on Capitol Hill.
Blockchain and crypto payments system Ripple Labs Inc. expanded its lobbying efforts at the end of 2018 while it awaits a decision by the SEC on whether its virtual currency XRP is exempt from securities classification and regulation from the commission.
The payments company began lobbying on its own in the final quarter of 2018 by reportedly spending $120,000. Ripple terminated its outside lobbying firm Baker & Hostetler LLP in the third quarter of 2018, according to lobbying disclosure records.. The law firm had reported spending $50,000 to $80,000 per quarter on Ripple’s behalf dating back to the fourth quarter of 2017.
Ripple tapped ACG Analytics as its new outside lobbying firm at the end of 2018 and boosted its outside spending to $90,000. ACG doesn’t specifically list terms linked to blockchain or virtual currencies on those lobbying reports, keeping disclosures to more generic “financial services” and “regulation.”
Traditional financial services companies like brokerage TDAmeritrade Holding Corp. also made their cyrpto interests known to lawmakers. The company’s fourth quarter 2018 disclosures listed virtual currency issues for the first time. TD Ameritrade was one of the first established financial industry players to support bitcoin futures trading. In October, the company announced an investment in a derivatives exchange, ErisX, to enable customers to make virtual currency futures and over-the-counter trades on its platform.
New crypto focused trade groups and alliances also emerged in the second half of 2018.
Ripple and a handful of virtual currency startups launched the Securing America’s Internet of Value Coalition to work on clarifying crypto custodial rules and tax treatment for capital gains and crypto assets.
The Blockchain Association was launched as a trade group in September. Membership has grown from the original nine companies, including crypto payments company Circle and Coinbase, to more than 19 members in less than six months. Starting at the end of the third quarter, the group reported just $30,000 of lobbying spending for that period but bumped it up to $120,000 in the last quarter of the year.
The Chamber of Digital Commerce, a blockchain industry advocacy group, saw a major increase in its lobbying dollars by the end of the year. The group was one of the first in the industry to enter the Washington regulatory lobbying space in 2014, but it only began reporting congressional lobbying in the fourth quarter of 2017. The group’s members include a broad range of crypto exchanges and blockchain project developers, traditional tech and financial services companies, and law firms.
The crypto industry gained new allies in Congress over the past year. A handful of House lawmakers became interested in the potential of digital tokens to support payments, smart contracts, data storage and other projects, beyond the technological possibilities of distributed ledger systems.
That culminated in a bipartisan bill, the Token Taxonomy Act, which would grant a wishlist of provisions for the industry, including ruling that digital tokens aren’t securities and providing a capital gains tax safe harbor for crypto-to-crypto trading.
The bill, introduced in late December and awaiting reintroduction in the new Congress, is likely to face an uphill battle as many lawmakers remain skeptical of virtual currency investment scams. That means the industry is likely to focus much of its congressional efforts on educational outreach in the near term, even as it works to garner more attention on some of the pain points for the growing industry still in its adolescence.
It’s natural that more voices are being added to the regulatory conversation about cryptocurrencies as the industry has grown and has more at stake, said Kristin Smith, the Blockchain Association’s director of external affairs.
“The open blockchain ecosystem is young and complex, two factors that are driving the cadence of conversations with members of Congress,” Smith said. “I think it’s become clear to lawmakers and regulators over the past few years that this industry has huge potential and supporting that growth is in the best long term interests of the U.S.”
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