Coinbase raises the temperature in Washington

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Hello and welcome to the FT Cryptofinance newsletter. This week, we’re all fused together and want to take a look at a crypto lobbying to get what it wants from Washington.

Coinbase has been many things in its short life: adult crypto, emblem of the industry’s growing confidence and hubris of growing too quickly. He also has a role as the main public lobbyist.

This week, the US digital asset exchange introduced a feature in its app that rates members of Congress on their crypto-friendliness, based on what they have said in public.

“Over time, we want to help pro-crypto candidates solicit donations from the crypto community [in crypto]”, explained the founder and managing director of Coinbase, Brian Armstrong, in a series of tweets. “The crypto community is much bigger than Coinbase – hopefully we can all come together to engage elected leaders and drive sensible policies.”

If you thought Coinbase was the company that said publicly two years ago that its corporate culture would discourage political causes, you’d be right. Armstrong explained the apparent contradiction: “I said they should stay out of politics unrelated to our mission.”

The extent to which employees are required to work to achieve a company’s political goals is an important topic, but for another time. For now, it’s worth pointing out how unusual this is.

Some advocacy groups record sentiment scores on officials and their stances on sensitive topics such as gun control or environmental issues and release the results closer to an election. It is extremely rare for a private company to adopt such a tactic. Moreover, there is no guarantee that it will achieve its objectives.

For the crypto market, dealing with Washington is a bit like stepping into an alien world. Satoshi’s original white paper solved a mathematical problem that had plagued those interested in digital money for years, but was also a policy document that encouraged proponents to circumvent regulated financial institutions and provided a blueprint for a currency to do it. Disdain for Washington and the banks is a hallmark of crypto culture, and word is spreading through social media, especially Twitter.

The industry is learning that trying to circumvent regulations is futile. The number of lobbyists representing cryptocurrency supporters has nearly tripled in three years, from 115 in 2018 to 320 in 2021, according to consumer watchdog group Public Citizen. The biggest spenders on crypto lobbying were Coinbase, Ripple Labs and Blockchain Association, which each spent over $2 million between 2018 and 2021, he added. Even so, there is still some way to go to match the spending of many other industries.

Coinbase may want to help pro-crypto candidates, but the flip side is that it puts pressure on more skeptical officials. This pressure would likely be exerted through social media, the industry’s favorite weapon. Channels such as Twitter, which Armstrong used to promote the scorecard, thrive on anger and emotion.

That’s what happened a year ago when Senator Rob Portman stuck a controversial provision for reporting crypto transactions to tax authorities in the Biden administration’s $1 billion infrastructure bill. .

The fact is that industry efforts to remove the clause have totally failed. “Washington isn’t as influenced by social media as the private market is,” said Charley Cooper, chief executive of blockchain software group R3, and someone with more than 25 years of Beltway experience. It always pays to have face-to-face meetings or go out for a beer to discuss issues. “He’s playing by an older set of rules,” he said.

Elsewhere in Washington, there is a battle between the Commodity Futures Trading Commission and the Securities and Exchange Commission to persuade authorities who should be the primary US crypto regulator.

The CFTC appears to be winning the race. Its president, Rostin Behnam, skillfully persuades those who matter by providing information and solving problems by explaining things face to face in the traditional Washington way. The difference in reception he and his SEC counterpart, Gary Gensler, received from senators at their respective hearings this week was striking. Gensler had a much tougher ride.

The crypto industry prefers the CFTC to be its primary regulator as well, but if it gets its wish, it may well be in spite of its efforts and not because of them.

Do you have any thoughts on the matter? Email me at philip.stafford@ft.com

Highlights of the week

  • The brother of a former Coinbase employee has pleaded guilty to a wire fraud conspiracy charge in a closely watched case involving allegations of insider trading in the crypto markets.

  • A South Korean court has issued an arrest warrant for Do Kwon, the co-founder of collapsed cryptocurrency operator Terraform Labs, for allegedly violating capital market rules after the $40 billion implosion terra stablecoin.

  • Global banking regulators in Basel said they aim to finalize a framework of capital rules that covers banks willing to hold and trade digital assets on behalf of clients by the end of the year.

  • Some of the biggest names in Wall Street trading, including Charles Schwab, Citadel Securities, Virtu Financial and Fidelity Digital Assets, are backing a new crypto exchange called EDX Markets, which promises “safer, faster and more efficient” trading of assets digital for US retail. and institutional investors.

  • One last thing: don’t miss the rebranded newsletter Future of Money, the FT’s guide to what’s driving the fintech industry. Get expert reports and analysis on the convergence of technology and banking every Monday. Register here.

Soundbite of the week: Vitalik Buterin salutes the success of the merger

“The merger symbolizes the difference between early-stage ethereum and the ethereum we always wanted it to become.”

It finally happened and there was no singularity that altered human civilization. The merger may turn out to be an important date in the history of computing. Likewise, this could be little more than a footnote in Ethereum history. At least it consumes less power and many people are happy that a complex and time-consuming IT project went smoothly. But that now means Ethereum proponents have one less excuse if it doesn’t turn out to be as groundbreaking as hoped.

Data mining

If you trade crypto, how do you approach something like meltdown? It’s a fundamental event that takes place at a known (roughly) time that is widely recognized as beneficial if all goes well, but has the potential to blow up in the faces of architects.

One approach is to turn to the derivatives market, which allows you to bet on the future direction of prices. My colleagues Laurence Fletcher and Josh Oliver have reviewed many strategies; go long, go short, buy on rumor, sell on news.

Its success did not mean good news for those betting on the price of Ether, Ethereum’s native token, which fell 9% in the following 24 hours. Data from Kaiko Research, via Deribit, showed that there were plenty of call options placed that would be priced above $5,000. As noted by Kaiko, Ether would need to more than triple to reach this point, and so it looks like these options will expire worthless.

Traders were hoping for big gains in Ether after the merger

It’s all for this week. Scott Chipolina will be back in the hot seat next Friday. Have a good week-end!



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