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Concerns rise over crypto regulation as Congress members disclose holdings

April 26, 2022, 2:15 PM UTC

As efforts to regulate the rapidly-growing cryptocurrency market increase, some observers are raising concern about the rising number of U.S. lawmakers beginning to dabble in digital assets.

Current members of Congress bought and sold an estimated $1.8 million worth of crypto-related investments since the beginning of 2021, according to an analysis conducted by data provider 2iQ Research. The amount is based on the midpoint of dollar ranges reported by lawmakers in public disclosures.

The findings come amid a broader backlash against members of Congress being able to trade securities while in office. In the case of crypto, the debate is taking place as the Securities and Exchange Commission and the Commodity Futures Trading Commission are still staking out their roles in regulating the asset class. The tug-of-war puts committees like Senate Banking and Agriculture, which oversee the SEC and CFTC, in a position to address crypto-regulation policy.

The 2iQ Research analysis found 21 members of Congress or their immediate family traded cryptocurrencies, crypto-investment products and stocks in crypto-related businesses. Out of the group, seven members serve on committees in the Senate or House that hold key regulators accountable.

“We need public confidence that Congress is making the right rules for the right reasons,” Richard Painter, former chief White House ethics lawyer and University of Minnesota law professor, said. “This is going to undermine public confidence in the crypto market.”

Among the assets include shares of Coinbase Global Inc. and Block Inc., owned by Democrats and Republicans alike. Coinbase, the largest U.S. crypto exchange, spent $1.5 million on lobbying efforts last year, according to a Public Citizen analysis of federal disclosures, more than any other crypto-focused entity. Block, which offers retail Bitcoin trading and spent $220 million to hold Bitcoin on its balance sheet, employed 10 lobbyists who worked on crypto-focused issues last year, the report found.  

Senator Pat Toomey, top Republican on the Senate Banking Committee, and Democrat Representative Marie Newman were among lawmakers who disclosed holdings of Grayscale Investments LLC funds, offering exposure to Bitcoin and Ethereum. Grayscale launched a campaign earlier this year to pressure the SEC to permit a U.S.-listed exchange-traded fund, or ETF, that directly holds Bitcoin. The firm aims to convert its Bitcoin Trust, held by Toomey of Pennsylvania and Newman of Illinois, into a spot ETF. Its parent company Digital Currency Group Inc. has also participated in lobbying efforts.

Representative Newman’s spokesperson declined to comment. A spokesperson for Toomey said crypto accounts for less than 1% of the senator’s overall investment portfolio. 

“Senator Toomey is concerned that forbidding elected officials and their families from participating in the stock market will further discourage qualified individuals from entering public service,” an emailed statement said. “From housing to agriculture, there’s no part of the economy Congress doesn’t touch.”

Republicans were the only members of Congress to report direct ownership of cryptocurrencies. Their digital assets range from Bitcoin to fringe coins like Basic Attention Token and Stellar Lumens. Alabama Representative Barry Moore counted Ethereum and meme-crowd favorite Dodgecoin in his holdings. Moore, a member of the House Agriculture Committee, didn’t respond to a request for comment.

Senator Cynthia Lummis, a long-time Bitcoin investor and Republican on the Banking Committee, is one of the lawmakers advocating for the CFTC to have a role greater role. Lummis has partnered with Senator Kirsten Gillibrand of New York to introduce a broad regulatory framework bill that includes definitions of duties for the SEC and CFTC.

Lummis’ spokesperson said the Wyoming senator does not actively trade cryptocurrencies and “has worked closely with the ethics committee to ensure her digital asset holdings are in compliance with all laws and ethical standards.”

Members of the House reported the most crypto-related asset trades. New Jersey Congressman Josh Gottheimer, who serves on Financial Services, disclosed investments in Block. He says his investments are managed by a third party with “full investment discretion.” The Democrat has co-sponsored a bill that would require Congress members to put stocks and bonds in a blind trust, preventing direct involvement in decision-making.

“I don’t believe Members of Congress, judges, or any government employee in a policy role, should be involved in the day-to-day trading of securities, including crypto currencies,” Gottheimer said in a statement. 

California Representative Rohit Khanna, a member of the Agriculture Committee and Blockchain Caucus, disclosed his family invested in Block. A spokesperson for the Democrat said he does not own any individual stocks and his wife’s assets are managed in a diversified trust by an outside financial adviser. 

Republican Senator Tommy Tuberville, who sits on Agriculture, disclosed investments in Coinbase and Block. His spokesperson says the Alabama senator’s portfolio is actively managed by financial advisers without his day-to-day involvement. Representative Ed Perlmutter, a Democrat on Financial Services, also reported stakes in the companies. The Colorado lawmaker didn’t respond to a request for comment.

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