Cryptocurrency companies are competing with lobbyists for subpoenas, which could be an existential battle over how to regulate a trillion dollar industry.
Lobbyists were inundated with firms looking for agents in Washington last month as regulators threatened cryptocurrency companies with lawsuits and cease and desist orders. Current and former law enforcement officials say these warnings are likely just the start.
Over the past decade, the cryptocurrency market has grown from a lesser-known project shared between engineers and liberals to a large, largely unregulated industry. But even as the industry digitally registers ownership and finds an innovative way to send money cheaply, it has launched savings accounts and mutual funds. Regulators say they should follow the same rules as traditional financial networks.
As the crypto industry braces for a regulatory battle, some lobbyists who asked not to release their names to discuss customer issues were hiring crypto companies in August. He said he was so outraged that he had to turn down potential customers. Some cryptocurrency companies have said they have been or should be targeted by regulators, lobbyists have said.
Earlier this month, the Securities and Exchange Commission sent a notice to Coinbase Global Inc. that it could be sued for offering an account with high interest rates.
Owen Tedford, analyst at Washington-based Beacon Policy Advisors, said: “It’s no surprise that Coinbase’s notifications are a wake-up call to the entire industry.”
According to documents filed in the Senate, nearly a third of new registrations of financial industry lobbyists in August and September were for crypto companies or advocacy groups. In August, Coinbase hired two new companies that doubled its presence in Washington, including Andrew Olmem, deputy director of Trump’s White House National Economic Council. Facebook Inc plans to launch a new cryptocurrency. Affiliates of the Diem Association, a group of companies that includes, have hired new lobbyists, as well as Digital Currency Group, a crypto-focused venture capital firm.
SEC Chairman Gary Gensler drew his first blood last week. Coinbase quietly ditched its rental product on Friday and announced a move with a short blog post update a few months ago.
“Lending cryptocurrencies is perhaps the easiest way for the SEC to enter the industry, but it’s very clear that they are considering cryptocurrencies themselves,” said the SEC, who heads the Healthy Markets Association. Former councilor Tyler Gellasch said. Members include large asset management companies. When many cryptocurrencies are considered securities, exchanges like Coinbase and other cryptocurrencies “can’t make money like they do today.”
BlockFi Inc. Cryptocurrency lending companies such as and Celsius Network Inc. have already earned more than $ 35 billion from deposits in traditional cryptocurrencies such as Bitcoin and Stablecoin, and their value is set at $ 1. It is considered a replacement for fiat money.
Crypto industry executives suspect that traditional financial rivals, such as the big banks, are responsible for the conduct of regulators.
At the “Ask Me Anything” event in September with customers, Celsius Network CEO Alex Masinsky said he believed bank executives were complaining to the SEC and state regulators about crypto lenders. ..
“These people have the biggest lobbyists working for them at the state and federal levels, so we need to redouble our efforts,” Masinsky said. “We are winning. The battle is beyond all the money in the world, isn’t it?”
The recent battle is over crypto lenders, who sometimes offer double-digit returns to depositors. Both companies say they can do this by lending deposits at higher rates to institutional investors who need to borrow crypto for their transactions.
Regulators believe that many companies should register their products as securities and are subject to additional disclosure and oversight. The product can be sold as a replacement for a bank’s savings account, and some regulators have said investors could be tricked into thinking they were taking little risk.
The controversy came to mind earlier this month when Coinbase CEO Brian Armstrong accused the SEC of “brutal action” in a series of tweets and argued that the account offered by Coinbase was a security. ..
Gensler said in a Senate hearing last week that Coinbase is not registered with the SEC, although the exchange’s “dozens of tokens” may be securities. A spokesperson for Coinbase said he did not believe the company was offering securities on its platform.
Cryptocurrency executives say they are frustrated that regulators are threatening to sue them, rather than giving advice on how to stay within the scope of the law.
At the SALT conference in New York last week, BlockFi CEO Zac Prince said the SEC and other regulators need to be clear on what the industry is allowed to do. Five states have already filed lawsuits against his company, accusing them of providing unregistered titles to their residents. The prince of the meeting said federal guidance was needed, not state action. BlockFi announced on Wednesday that New Jersey has agreed to extend the order to suspend the provision of accounts until December.
Even some companies using similar SEC products are seeking advice from more agencies. For example, Circle Internet Financial Inc. offered high-yield deposit accounts to corporate clients and notified the SEC of an exemption for accredited investors, CEO Jeremy Aller said.
“I want to understand if US regulators want to regulate cryptocurrency lending, work with the industry to define what interests them there and define rules of involvement,” Allaire said. .. “The United States is very reluctant to clarify digital assets. “
Enforcement officers believe the law is already clear on their part. During a banking hearing, Gensler pointed to a long-standing court ruling that has helped define the scope of government agencies, stating that many crypto products, and even cryptocurrencies, likely fall under this authority.
Gellasch, a former SEC attorney, said if a stock exchange offered securities, it could be required to register with an agency.
Some crypto advocates in Washington are hoping that feuds, such as between the SEC and Coinbase, will be taken to court so that judges, rather than agency employees, can judge the company’s boundaries. Declared.
Jerry Brito, executive director of Coyne Center, a cryptocurrency think tank, said:
Joe Rotunda, executive director of the Texas Securities Commission, said other crypto lenders shouldn’t expect his agents or other states to brake even if the SEC starts to move. Noted.
“I am very relieved to see federal regulators scrutinizing cryptocurrency deposit accounts,” his agency and other companies offering similar products said. Rotunda said he is still investigating. “At the same time, they haven’t done anything yet.