Cryptocurrencies grabbed the national spotlight this weekend as celebrities hawked the digital money to millions of viewers in big budget Super Bowl ads. The spots boosted the ongoing campaign to portray crypto as a way to reduce income and wealth inequality around the world.
And yet, cryptocurrencies like Bitcoin now have their own top 1 percent who reap most of the gains, and the extreme volatility of crypto means most people who trade in digital currencies use them as speculative investments. What’s more, creating cryptocurrencies is so energy-intensive that the process of doing so now has a larger carbon footprint than entire countries.
As lawmakers consider reining in crypto through increased regulations, transaction taxes, and a public option for digital currency, the industry is working to forge close ties with allies in Washington. According to a Daily Poster review of OpenSecrets campaign finance data, crypto-aligned interests have funneled more than $200,000 to Representative Tom Emmer (R-MN), a top-ranking member of the House GOP. Senator Ted Cruz (R-TX), meanwhile, has been reaping rewards from investments in crypto and related businesses.
In exchange, lawmakers like Emmer and Cruz have become eager mouthpieces for the cryptocurrency industry, opposing commonsense reforms and pushing dubious claims about the benefits of blockchain mining.
“It’s a huge problem,” said Rohan Grey, assistant professor of law at Willamette University. “All you need is for [a member of Congress] to be told they could get 300 or 400 percent returns in a year, and all they need to do is be skeptical that we should aggressively regulate this sector.”
“Bogus Digital Private Money”
Bitcoin, the first and most notable cryptocurrency, arrived on the scene in 2009. Beginning with a value of zero dollars per coin, Bitcoin currently sits at a value of more than $43,000 per coin with a peak of over $64,000 as recently as November 2021.
Every cryptocurrency is based on a blockchain, a technology that verifies transactions and logs them in a digital ledger. While individuals can buy and sell crypto like they would shares of a company on the stock market, blockchain mining is the process by which such transactions are verified. If a miner is the first to verify a transaction, they are rewarded for their work with a coin.
This work is energy-intensive and requires high-powered computers that compete in a race to be the first to verify transactions. The biggest miners in the business can fill entire warehouses with such computers running for the sole purpose of blockchain mining.
Today there are hundreds of cryptocurrencies, including Ethereum, Tether, and Cardano, composing a market worth over $3 trillion. Cryptocurrencies are ostensibly an alternative to government-issued currencies like the US Dollar, but the extreme volatility of crypto means they are highly vulnerable to price manipulation via “pump and dump” schemes.
With cryptocurrency blossoming into such a large industry, it was only a matter of time until lawmakers in Washington, like Senator Elizabeth Warren (D-MA), took notice and began exploring regulatory policy.
Over the last year, Warren has called on Securities and Exchange Commission chair Gary Gensler and Treasury Secretary Janet Yellen for more oversight and regulation of crypto. She has been a vocal critic of the high volatility of cryptocurrencies and the danger these issues pose to small-time investors.
Warren also touted Central Bank Digital Currencies (CBDC), a sort of public option for the crypto industry, as a more stable and reliable alternative to what she calls “bogus digital private money.”
“If you’re talking about a private cryptocurrency like Bitcoin, that’s something that can fluctuate in value against the dollar,” said Grey. “You may wake up one day and the amount of money in your account is a third of what it was the day before… If you’re using it to buy groceries or pay rent it’s always going to have greater degrees of instability or risk [than a CBDC].”
According to David Gerard, a cryptocurrency expert and author of Attack of the 50 Foot Blockchain, CBDCs also come without the need to verify transactions over a distributed ledger like blockchain-based cryptocurrencies and are therefore far less energy-intensive.
“CBDCs are just financial computer systems,” Gerard said. “They don’t use the incredibly stupid, crime-against-humanity, of proof-of-work power wasting that cryptocurrencies do.”
Crypto’s Man in the House
The crypto industry, meanwhile, is cozying up to Washington lawmakers — in particular Emmer in the House of Representatives.
A Daily Poster analysis of campaign finance data dating back to the 2016 election cycle found that Emmer accepted at least $211,000 in PAC contributions from firms trading in crypto or otherwise financially aligned with the industry. This includes $43,000 during the 2016 cycle, $74,000 in the 2018 cycle, $67,000 in the 2020 cycle, and $27,000 so far in the 2022 cycle.
These contributions came from firms including Goldman Sachs, LPL Financial, Fidelity, CME Group, and Invesco. Most of these donors are companies that allow clients to trade in cryptocurrencies or crypto-base exchange traded funds. Others, like Goldman Sachs or Nomura Holdings fund or invest in cryptocurrency startups like Circle or Crypto Garage.
Emmer is a top-ranking member of the House GOP and serves as the chairman of the National Republican Campaign Committee. After leading a surprisingly strong showing for House Republicans in the 2020 election, Emmer is well-positioned to take advantage of what is likely to be a wave year for the GOP in the 2022 midterms and assume the role of House Majority Whip next year.
Emmer is also one of four cochairs on the Congressional Blockchain Caucus, founded in 2016 by Colorado governor and former Democratic representative Jared Polis and former Trump chief of staff, Mick Mulvaney. The caucus, which focuses on cryptocurrency policy, now boasts more than thirty members, a sign of growing interest in blockchain technology among members of Congress.
Now, with his campaign coffers full of crypto contributions, Emmer has emerged as one of the leading industry advocates at the Capitol.
Emmer, for example, has brushed aside concerns surrounding the environmental impact of blockchain mining.
“We’ve had people in front of the committee saying, this is bad for the environment because you’re burning up so much electricity, a false argument,” Emmer told the digital publication MinnPost last October. “What they’re doing is they’re trying to distract you from what we really need to be talking about.”
And last month, he proposed a bill prohibiting the Federal Reserve from issuing CBDCs to individuals, citing privacy concerns and government overreach.
“Requiring users to open up an account at the Fed to access a U.S. CBDC would put the Fed on an insidious path akin to China’s digital authoritarianism,” Emmer said in a statement at the time. “In order to maintain the dollar’s status as the world’s reserve currency in a digital age, it is important that the United States lead with a posture that prioritizes innovation and does not aim to compete with the private sector.”
Emmer also opposed a tax in the bipartisan infrastructure bill that would raise revenue by obligating crypto brokers to report certain transactions to the IRS, objecting to the fact that the measure’s definition of broker was broad enough to include software engineers and blockchain miners.
Emmer’s opposition to the tax came just as the cryptocurrency industry was stepping up its lobbying efforts, funneling millions of dollars into a campaign to block the infrastructure bill, according to a report from the Center for Responsive Politics.
Cruz’s Crypto Ties
Sparse regulations in Texas have attracted a flourishing blockchain mining industry, and firms like Riot Blockchain and Argo Blockchain are now pitching the energy-intensive practice to lawmakers as a counterintuitive fix for the state’s beleaguered energy grid, which over the past few winters has suffered major power outages that left hundreds dead.
“Texas has really tried to make itself a Mecca for new industries,” Grey said. “The blockchain community has done a very good outreach job to Texas politicians like Ted Cruz who… have gone out and started becoming bitcoin evangelists.”
For years, these companies promoted the idea that the high-energy demand of mining warehouses might drive interest in building more power plants in the state. These businesses also claim miners can quickly shut down their warehouses in the event of strains on Texas’s energy grid. But as Bloomberg reported last month, there is currently no guarantee or requirement for companies to shut down mining operations in the event of an outage.
Still, Texas lawmakers like Cruz have expressed their faith in the industry’s ability to remedy Texas’ energy woes.
“A lot of the discussion around bitcoin views bitcoin as a consumer of energy,” said Cruz at the Texas Blockchain Summit last October, where he spoke for thirty-eight minutes. “The perspective I’m suggesting… is [bitcoin] as a way to strengthen our energy infrastructure… If you have a moment where you have a power shortage or a power crisis… that creates the capacity to instantaneously shift that energy to put it back on the grid.”
During his talk, Cruz failed to mention his ties to the crypto industry. Cruz and his wife, Heidi, have sizable investments in Goldman Sachs, where Heidi is a managing director. Goldman allows its wealth management clients to invest in Bitcoin and bankrolls the crypto firm Circle.
During his first Senate campaign in 2012, Cruz failed to disclose two loans of up to $500,000 from Goldman Sachs and Citibank, the latter of which launched a digital assets group last June to help clients invest in cryptocurrencies and other blockchain based assets. Cruz’s failure to disclose these loans came to light during his 2016 presidential campaign and in 2019, the Federal Elections Commission fined him $35,000 for the oversight.
On January 25, the senator made a well-timed purchase of up to $50,000 worth of Bitcoin. He has likely already made a profit of at least $3,000 on his investment.
Crypto Traders in Congress
While Cruz is the latest example of a lawmaker investing in crypto, several members of Congress began trading in cryptocurrencies in 2021, according to a report on financial disclosure forms by Unusual Whales, which tracks lawmakers’ speculative investments.
“In general, Congressional stock trading is a problem, so certainly it’s a problem for crypto,” said Grey. “You can have situations where members can be encouraged to get in on the ground floor of some new venture, and all they need to do is help delay new regulations, so these entities can enjoy the gold rush of the crypto sector right now, and they stand to profit very handsomely.”
Congressional crypto traders include Senator Cynthia Lummis (R-WY), who purchased up to $100,000 in Bitcoin last August — at the same time as she was leading an effort in the Senate to narrow the scope of the crypto tax in the bipartisan infrastructure bill. Cruz and Senator Pat Toomey (R-PA), who held up to $30,000 in cryptocurrency, aided Lummis in her efforts at the time.
In the House, Representative Barry Moore (R-AL) invested up to $45,000 in Ethereum and $15,000 in Cardano last year. Representative Mark Green (R-TN) also played the field, investing in seven different cryptocurrencies with amounts ranging from $15,000 to $30,000. Representative Michael Waltz (R-FL) invested as much as $100,000 in Bitcoin. Meanwhile, Representative Jeff Van Drew (R-NJ) reported investing up to $250,000 in a crypto trust operated by Grayscale.
Democrats, too, are dabbling in crypto. Representative Jake Auchincloss (D-MA) reported investing as much as $15,000 in Flipside Crypto Investor Holdings, according to a financial disclosure he filed last July.
Progressive representative Marie Newman (D-IL) also has ties to the crypto industry, since her husband, Jim Newman, has reportedly traded sixteen times on the cryptocurrency exchange Coinbase, with a recent trade in November valued at between $50,000 and $100,000. He also invested up to $50,000 in the Grayscale Bitcoin Trust, a financial vehicle that allows investment in trusts holding large amounts of Bitcoin.