The Crypto Show: Donald Trump and the Industry's Determined Effort to Gain Relief From S.E.C. Oversight

After picking J. D. Vance, a former venture capitalist and cryptocurrency booster, as his running mate, Trump appeared at a Bitcoin conference in Nashville

As Donald Trump's reëlection bid flounders, the crypto industry is making a determined effort to gain relief from S.E.C. oversight at the same time that it is making inroads into mainstream finance. If this industry maneuver succeeds—and it may well do so if Trump wins in November and Republicans sweep Congress—the long-term consequences could be calamitous.

To understand the current situation, it’s necessary to go back a couple of years, when the industry was in crisis. In December, 2022, Sam Bankman-Fried, the founder of the cryptocurrency exchange FTX and a major political donor, was arrested. Subsequently, he was convicted of defrauding FTX customers out of more than $1.7 billion and sentenced to twenty-five years in prison. In November, 2023, Changpeng Zhao, the founder and C.E.O. of Binance, the world’s largest cryptocurrency exchange, pleaded guilty to failing to counter money laundering on the exchange, and was sentenced to four months in prison

The confirmation that criminality was at the heart of crypto trading was, of course, a big setback for the industry at large. But an even bigger threat came in the form of Gensler and his campaign to treat many crypto assets as investment securities, like stocks or bonds, which would make them subject to strict investor-protection laws and government oversight. The crypto industry had long argued that investing in crypto is more akin to buying commodities, such as precious metals and pork bellies, which are regulated by the Commodity Futures Trading Commission, a much smaller agency than the S.E.C. and one that historically has been less focussed on individual investors

In September, 2022, Gensler said, in a speech in Washington, that he believed “the vast majority” of crypto tokens were securities, and he quoted Joseph Kennedy, the first head of the agency, who averred, “No honest business need fear the S.E.C.” In the following months, the S.E.C. sued some leading crypto firms, including Binance and Coinbase, the largest U.S. crypto exchange. The agency accused the two companies of operating unregistered securities exchanges, and other violations. The companies denied any wrongdoing and tried to get the cases dismissed before trial

In March of this year, a federal judge in New York ruled against Coinbase and said that most of the case could go ahead. In June, a judge in Washington, D.C., said that most of the Binance case could go ahead, too. Last December, a federal judge in New York said “there was no genuine dispute” that four crypto tokens sold by Terraform Labs, a South Korean crypto company, were securities under U.S. laws

The S.E.C. has also suffered setbacks on that key issue. In July, 2023, a federal court in California ruled that XRP, a token created by the San Francisco-based crypto company Ripple Labs, wasn’t a security when it was sold to the public on a crypto exchange. And in June of this year, the S.E.C. closed an investigation into Ethereum, the second-biggest blockchain network after Bitcoin, without making a determination on whether it was a security. But, in the main, the agency had made progress in the courts

“People in the crypto industry are doubling down on political contributions,” Dennis Kelleher, the president of the public-interest group Better Markets, told me. “They can see the trend of losing to the S.E.C. in court. The legal walls are closing in, and they want Congress to say digital assets are not securities, so the S.E.C. has no jurisdiction over them. That’s the big ask.”

The scale of crypto-industry donations is startling. According to Bloomberg, three crypto super PACs, including the biggest one, Fairshake, have raised a hundred and seventy million dollars from donors including Coinbase, Ripple, and the venture-capital firm Andreessen Horowitz. The flood of crypto money isn’t just going to Trump’s Presidential campaign. It’s also going to House and Senate campaigns. And whereas most of it seems likely to be directed at defeating Democrats who have been critical of crypto, including Senator Sherrod Brown, of Ohio, and Senator John Tester, of Montana, some is also going to other Democrats

In a primary election last week in Arizona’s Third Congressional District, Yassamin Ansari, a Democratic member of the Phoenix city council, whose campaign had been boosted by ads paid for by a crypto super PAC, defeated Raquel Teran, a former chair of the state Democratic Party. Given all the crypto cash that is sloshing around, it may not be a coincidence that more than a dozen House Democrats recently signed a letter to Jaime Harrison, the chair of the Democratic National Committee, asking the committee “to take a forward

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