The cryptocurrency sector is gaining traction in Washington, and the momentum isn’t solely attributed to Donald Trump. A notable figure within the Democratic Party is rising to prominence, while the industry has recently showcased its influence by overcoming a long-standing opponent through a surge of campaign contributions. The anticipated legislation supporting crypto-friendly stablecoins is set to advance in the Senate after years of stalling on the industry’s agenda in Capitol Hill. The outlook for other significant initiatives is also becoming more favorable.
Key Political Developments Favoring Crypto
Democratic Senator Kirsten Gillibrand of New York, a long-time champion for the crypto sector, has ascended in her party’s leadership, now leading election fundraising efforts. She is leveraging her increased influence to advocate for the repeal of a tax reporting regulation concerning digital assets, as well as to push for a stablecoin regulatory framework that aligns with industry interests. Cynthia Lummis, a leading crypto advocate among Senate Republicans from Wyoming, emphasized the importance of Gillibrand’s support in this legislative endeavor.
Despite being in the minority, Democrats can still obstruct legislation in the Senate, where a supermajority of 60 votes is typically required for most bills. Lummis acknowledged Gillibrand’s pivotal role, noting the trust and credibility she has established on financial matters while representing a state that is home to many financial institutions.
Building Bipartisan Support for Crypto Legislation
Gillibrand’s relationships with Republicans extend to Tim Scott, the Banking Committee Chairman and another pro-crypto supporter, who has also been assigned to lead his party’s fundraising efforts for upcoming elections. The two share a personal bond and participate in a weekly prayer group. Their collaboration on crypto initiatives even led to the formation of a joint fundraising committee in 2022. Gillibrand advocates for nurturing the burgeoning crypto sector rather than pushing it overseas due to excessive regulatory measures favored by some progressives, including Senator Elizabeth Warren. Nonetheless, she acknowledges the necessity of certain regulations to prevent industry collapses and frauds akin to those associated with figures like Sam Bankman-Fried.
The Impact of Political Donations on Legislation
Under Trump’s administration, which has shown support for cryptocurrencies—including the introduction of his own memecoin—federal regulators have shown restraint in pursuing cases against crypto firms. However, this leniency may only last as long as Trump remains in office. For the crypto sector to achieve lasting legislative changes, congressional approval is essential, and bipartisan cooperation will be crucial to navigate procedural hurdles.
Last week, the industry’s political influence was evident when five Senate Democrats on the Banking Committee broke ranks with warnings from Warren and endorsed legislation regulating privately issued stablecoins tied to the US dollar. This marked a significant shift from earlier years, when crypto skeptic Sherrod Brown, the former Democratic chairman of the Banking Committee, obstructed Gillibrand’s initiatives. Brown had previously hindered efforts that were financially bolstered by Bankman-Fried’s contributions.
Crypto’s Financial Influence in Upcoming Elections
Meanwhile, key players in the crypto space have invested heavily in the most well-funded coalition of corporate political action committees in US history—Fairshake PAC and its affiliates. They allocated $40 million to unseat Brown in the November elections, aiming to replace him with Republican Bernie Moreno, a blockchain entrepreneur and crypto advocate. Additionally, the PAC contributed substantial sums to several newly elected Democratic senators, including Ruben Gallego of Arizona, who are more receptive to crypto initiatives, according to data from OpenSecrets.
As the new congressional session commenced, the financial strength of the crypto industry in the upcoming midterm elections became evident. In January, Fairshake announced that it and its affiliates had already accumulated a war chest of $116 million—an impressive sum well ahead of election day. Moreno and Gallego, now on the Banking Committee, played a role in advancing the stablecoin legislation to the Senate floor, where it is likely to garner the necessary 60 votes with Gillibrand’s backing.
Concerns Over Consumer Protection in the Crypto Space
Consumer advocates express concern that the financial power of the crypto industry may overshadow the need to safeguard digital asset users from scams and prevent potential systemic failures in the financial sector. Jeff Hauser, executive director of the progressive watchdog group Revolving Door Project, voiced that the influx of crypto money into campaigns has unsettled many Democrats.
Gillibrand refutes the notion that campaign contributions from crypto supporters sway senators’ votes, stating, “No one should care, you know, which industries are for or against them because of their political giving.” She believes that senators are not easily influenced by threats related to campaign financing.
Regulatory Framework for Stablecoins
In response to concerns raised by critics like Warren regarding the need for robust protections for consumers and the financial system against potential failures of significant stablecoins, Gillibrand contends that her proposed legislation aims to ensure the stability of these digital assets. This includes mandates for one-to-one reserves under oversight from state or federal entities, with the Federal Reserve also playing a role. The reserves are required to be held in highly liquid assets, such as short-term government securities, to mitigate the risk of a run on a stablecoin.
Prominent companies like Visa, PayPal, and Stripe are making strides in projects related to stablecoins. Gillibrand, who has a background as a securities lawyer, compares stablecoins to traveler’s checks or gift cards, emphasizing their role as a payment method rather than a conventional bank account or a product requiring FDIC insurance. “It’s a payment system,” she explained.
