BETWEEN 2017 and mid-2021 the Commodities Futures Trading Commission (CFTC) was one of the American government agencies that discussed crypto the most. Brian Quintenz, who ran its Technology Committee, was responsible for much of that, organising presentations on everything from the integrity of bitcoin spot markets to the subject of decentralised finance. “I developed a reputation as being…an advocate of innovation,” he says.In September Mr Quintenz joined Andreessen Horowitz, a venture-capital firm and an investor in crypto startups, as an adviser. He is only one of many former American officials to have flocked to the cryptoverse. Others include Jay Clayton, the previous head of the Securities and Exchange Commission (SEC); Brian Brooks, who until January was the acting Comptroller of the Currency; and Chris Giancarlo, head of the CFTC between 2017 and 2019. In Britain, Philip Hammond, a former Chancellor of the Exchequer, joined Copper, a crypto startup, in October. A recent wobble notwithstanding, the market value of crypto assets has risen 12-fold since early 2020, to $2.4trn. Some places, like El Salvador, have sought to ride the wave, embracing crypto to gain celebrity. Others, such as China and India, have threatened to ban it. Watchdogs in America and Europe, the home to much crypto-trading activity, by contrast, are only just beginning to sniff around digital assets. And that in turn is prompting crypto firms to try to steer, if not head off altogether, the coming wave of regulation. “All of a sudden”, says Loni Mahanta of the Brookings Institution, a think-tank in Washington, lobbying “is on a rocket ship.” Reams of regulations are potentially in play. One set involves stopping crypto assets from being used to launder money. In October the Financial Action Task Force, an intergovernmental body which sets global standards, recommended new rules for crypto-services providers, including those regarding the user data they must collect. Countries are implementing these, but at varying speeds. A second area, overseen by lawmakers, concerns the taxation of crypto investments. Some countries treat them like property, with levies on capital gains due only when assets are sold. Others regard them as akin to foreign exchange, meaning unrealised gains are also taxed. A third set of rules involves financial regulation: protecting consumers from fraud, reducing systemic risk and ensuring fair competition. Market watchdogs are pondering whether digital assets count as securities, which require heavy disclosures from issuers, or as commodities, where the (lighter) onus is on exchanges to prevent market manipulation. Gary Gensler, the head of the SEC, has said he wants tougher policing of the crypto “Wild West”. The EU is preparing rules that force crypto firms to seek licences and ban tweets meant to manipulate markets. Officials seem keenest to tame stablecoins, tokens that are pegged to conventional money. How to win friendsUntil recently most crypto firms, some of which aspire to a libertarian Utopia where blockchains remove the need for financial intermediaries and regulators, took little notice of officials. But that has changed as the pressure has ratcheted up. Binance, a large crypto-exchange, came under scrutiny in the summer, with regulators in Britain, Germany and Japan among those warning that it was conducting certain operations in their jurisdictions without the appropriate authorisation. Another wake-up call came from America in August, when a clause that required many crypto firms to report transactions to the taxman was tucked into President Joe Biden’s infrastructure bill. The industry consequently began a counter-offensive.One prong of it has been to lure government officials and compliance experts from banks with big pay packets. Deepali Vyas of Korn Ferry, a headhunting firm, says senior risk managers are typically promised a salary of $600,000-2m; former high-ranking regulators are also locked in with share bonuses worth tens of millions of dollars, which vest over years. The former head of an American regulator, now at a crypto group, says he spends a lot of time meeting lawmakers and civil servants. The industry is also hiring lobbyists. Based on public disclosures The Economist calculates that crypto firms spent around $5m lobbying the American Senate in the first nine months of 2021. About $2.5m of that was spent between July and September—a quadrupling over the same period last year. Such activities employ the equivalent of 86 full-time staff, up from just one in 2016. Coinbase, a big crypto exchange, doled out $625,000 on lobbyists in the third quarter alone. Block, a crypto-friendly payments firm, has spent more than $1.7m since April 2020. The campaign is also ramping up in Brussels, the EU’s de facto capital, where the industry has deployed the equivalent of 52 full-time lobbyists. Some big firms are trying to pre-empt tougher rules by making proposals of their own: Andreessen, for instance, is pressing for self-regulation, while Coinbase argues for a new industry watchdog. Another route for influence comes from firms clubbing together through trade associations. Perianne Boring, who runs the Chamber of Digital Commerce, a group in America that is largely made up of crypto firms, says her work ranges from advocating for bitcoin exchange-traded funds to rebutting arguments linking cryptocurrencies to ransomware. “We’re seeing much higher-level officials engaging with us,” she says.The industry has gained political capital, too. In America, the congressional Blockchain Caucus counts 35 lawmakers as members. Cynthia Lummis, a senator from Wyoming, has received a big chunk of her 2026 campaign contributions from individuals linked to crypto firms. Last month she said she opposed Jerome Powell’s reappointment as head of the Federal Reserve because of the central bank’s “political approach to digital assets”. In October 2020 the Chamber of Digital Commerce’s political-action committee gave $50 worth of bitcoin to every member of Congress. With watchdogs on the alert, crypto-capitalists’ visions for regulation are unlikely to materialise in their entirety. But the risk is that they lead to puny rules. In August the passage of the infrastructure bill was delayed by a week after a bipartisan group of lawmakers objected to the crypto provision. The legislation, including the provision, was eventually enacted in November. But a new bill is now trying to weaken the crypto clause. The rewards for walking through the revolving doors are only going up. More
