July 3, 2022

BITCOIN BARKERS: Are these Senators in thrall to the cryptocurrency industry?

BITCOIN BARKERS: Are these Senators in thrall to the cryptocurrency industry?

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The world of Bitcoin and other cryptocurrencies has both its fervent adherents — primarily those people who bought their assets at low prices and reaped a fortune — and its detractors— often people who have lost money in periodic cryptocurrency crashes and have suddenly realized the sad reality that these blockchain-based digital currencies are based on nothing more tangible than the unwavering faith of its owners in their value.

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The recent volatility in the crypto markets, however, and the large sums of money lost by some less-than-experienced investors have led to calls for greater regulation of the cryptocurrency exchanges that facilitate the buying and selling of these faith-based assets.

And, of course, the minute you raise the specter of government regulation, here come the lobbyists, ready to advance the interests of the Bitcoin and cryptocurrency exchanges in front of legislators who can put a significant dent in their plans for lucrative world domination.

Judd Legum, the political journalist behind the Substack newsletter Popular Information, took a look at some of the effects such lobbying efforts have had on members of Congress who are currently advancing regulatory legislation for the cryptocurrency industry and how their proposed rules might affect the average Bitcoin investor.

Legum begins his account with a scene featuring Senators Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY), who made a joint appearance on CNBC to hype their bipartisan bill designed to regulate the cryptocurrency industry.

Host Andrew Ross Sorkin, also a financial columnist for The New York Times, asked the senators whether Bitcoin and other digital currencies would be a suitable investment for individual IRA accounts.

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Both senators enthusiastically replied in the affirmative, with Gillibrand stating that “the legislation she is introducing with Lummis will create imbue crypto with ‘safety and soundness’ and give investors confidence that crypto is ‘here to stay,'” according to Legum.

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It was a timely question from Sorkin since investment giant Fidelity, which manages more 401K plans than any other financial institution in the country, announced in April that it would allow its customers to devote part of their retirement funds to Bitcoin “if their employers are willing to allow it.”

Despite the enthusiasm of Senators Gillibrand and Lummis, however, the U.S. Labor Department — which oversees employers offering 401K plans — has “grave concerns with what Fidelity has done,” according to one senior Labor Department official. Noting that cryptocurrency is a “speculative and volatile investment” — a fact confirmed by the 43% drop in its value over the past six months — “the Labor Department notes that ‘extreme volatility can have a devastating impact on participants, especially those approaching retirement and those with substantial allocations to cryptocurrency.’

Employers that authorize investments in cryptocurrency could be violating their fiduciary duty ‘to identify and avoid imprudent investment options,'” according to Legum.

What neither Gillibrand nor Lummis revealed to Sorkin during their appearance on CNBC was the fact that each of them has financial ties to the cryptocurrency industry. Popular Information reports:

“In the CNBC interview, Lummis and Gillibrand rejected the Labor Department’s guidance but failed to disclose their financial ties to the crypto industry. Lummis purchased between $50,000 and $100,000 in Bitcoin on August 17, 2021. At the time of her purchase, a Bitcoin was worth $44,671.

Today, a Bitcoin is worth $27,978.70. If a portion of the $11 trillion invested in 401(k) accounts were diverted into Bitcoin, it could significantly drive up the price. Lummis previously said that she has been investing in Bitcoin since 2013, and her current holdings are valued between $150,000 and $350,000. “

“Gillibrand does not report any crypto assets. But Kristin Smith, executive director of the Blockchain Association, the lobbying organization for the crypto industry, reportedly hosted a fundraiser for Gillibrand in Manhattan on May 31. The fundraiser occurred just a week before Gillibrand and Lummis introduced legislation regulating the industry.”

“The legislation is consistent with the work of two Senators seeking to ingratiate themselves with the crypto industry.”

Legum goes on to report on some of the major issues in cryptocurrency regulation, including whether the industry should be overseen by the understaffed Commodity Futures Trading Commission or by the more robust oversight of the Securities and Exchange Commission.

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To top it all off, the bipartisan bill provides tax breaks to Bitcoin holders and other cryptocurrencies in the proposed Gillibrand/Lummis legislation.

 

With Bitcoin already seen as a handy vehicle for tax evasion, the implementation of additional favorable tax treatment for cryptocurrency profits is anathema to tax policy experts.

You can read the entirety of Judd Legum’s reporting on “Crypto comes to Washington” on the Popular Information page on Substack.

Follow Vinnie Longobardo on Twitter.

Vinnie Longobardo

is the Managing Editor of Washington Press and a 35-year veteran of the TV, mobile, & internet industries, specializing in start-ups and the international media business. His passions are politics, music, and art.

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