Democrats Woke Up to Trump's Crypto Grift. Will They Stop Other Scammers?
Cryptocurrency legislation once seemed to be the rare issue that could draw bipartisan support in Donald Trump's Washington, thanks to the industry's prolific donations on both sides of the aisle.
Then Trump and his family attempted to monetize the presidency through a meme coin and a $2 billion crypto deal involving an Abu Dhabi-backed venture firm.
Democrats were, suddenly, outraged. Some centrist party members who had treated cryptocurrency with deference even began to walk away.
Nine Senate Democrats pulled their support for so-called 'stablecoin' legislation over the weekend, imperiling the industry's most likely legislative win this year. Meanwhile, Rep. Maxine Waters, D-Calif., blocked a House hearing on a broader, more ambitious crypto 'framework' on Tuesday, leading several Democrats in a walkout. 'Trump may just cause enough polarization to make crypto skepticism mainstream within the Democratic Party.'
The industry is still pushing for a vote on the legislation in the Senate, where Democrats continue to work on a potential compromise. Yet for skeptics who have had their warnings about crypto's threat to the economy ignored for years, Democrats' sudden conversion was heartening. They just wished it hadn't taken Trump to wake the party up.
'Crypto has been able to buy so many Democrats because there was no organized opposition and thus little downside to politicians selling their vote,' said Jeff Hauser, a longtime critic of the industry and executive director of the Revolving Door Project. 'Trump may just cause enough polarization to make crypto skepticism mainstream within the Democratic Party.'
The industry's bipartisan alliances were on display last May, as the House debated its favorite legislation: the Financial Innovation and Technology for the 21st Century Act.
Out of 213 Democrats, 71 joined with Republicans to give overwhelming support to FIT21, as it is known, though the bill did not proceed to a vote in a Senate. The legislation is aimed creating a framework that would largely shield the industry from oversight by the Securities and Exchange Commission, which is viewed as having the sharpest regulatory bite.
The industry seemed even better positioned this year, thanks to Trump's election and a record-breaking $197 million spending spree on the 2024 campaigns. All the cash helped knocked hostile Democrats out of primaries and propel industry-friendly candidates in the general election.
Analysts predicted that after the new Congress was sworn in, Democrats skeptical of the industry would hold their tongue for fear of facing well-funded primary challengers. Trump and his family's rapid move into the industry, though, seems to have changed the calculation for some Democrats.
The White House has said that the Trump family's crypto deals raise no ethical concerns because Trump's business interests are held in a trust that his sons run.
In September, Trump's sons helped launch a crypto marketplace called World Liberty Financial.
Hours before his inauguration, the Trump Organization launched a Trump meme coin that has now generated more than $320 million in transaction fees, according to a recent analysis.
Then, last week, World Liberty Financial announced the massive deal with the Emirati firm, which planned to use the company's tokens to make a transaction with the crypto exchange Binance, according to a report in the New York Times.
By that point, the bipartisan mood on Capitol Hill was already beginning to sour.
Waters expressed openness to legislation dealing with stablecoin last year. In March, however, the Trumps announced that they would be issuing a stablecoin of their own. Waters on April 2 tried to amend a stablecoin bill in the House Financial Services Committee, where she serves as ranking member, to prohibit the Trump family from issuing one that benefits the president.
Republicans rejected her bid, and the bill passed out of committee with support from several Democrats, including some who have drawn hundreds of thousands of dollars in donations from the industry.
Then, as news of World Liberty Financial's Abu Dhabi deal circulated, Sen. Ruben Gallego, D-Ariz., led eight other Democrats in announcing Saturday that they were backing off their support for a similar stablecoin bill in their chamber, imperiling its chances of overcoming a filibuster.
Though Gallego and several of his colleagues had just voted for the bill in committee, they now said it 'has numerous issues that must be addressed, including adding stronger provisions on anti-money laundering, foreign issuers, national security, preserving the safety and soundness of our financial system, and accountability for those who don't meet the act's requirements.'
Gallego's statement may have had a special sting for the industry, which spent $10 million in super PAC funds helping him win his Senate race last year.
In a joint statement Monday, three leading crypto trade organizations said they still hoped the Senate would advance the legislation.
'A comprehensive regulatory framework will enable widespread and increased stablecoin adoption,' the groups said, 'which is essential to cementing U.S. dollar dominance in the digital economy.'
According to Axios, Senate Majority Leader John Thune, R-S.D., is still planning to hold a vote on the stablecoin bill on Thursday, and the measure's sponsors are hoping to strike a deal to revive the legislation.
On Tuesday, Waters ratcheted up pressure on the industry by objecting to a joint House Financial Services and Agriculture committee meeting on the newest iteration of the FIT21 bill.
'I object to this joint hearing, because of the corruption of the president of the United States and his ownership of crypto and his oversight of all the agencies. I object,' Waters said.
Rep. French Hill, R-Ark., the chair of the Financial Services Committee, said the hearing had been negotiated with Democrats for weeks.
'Through her actions today, the ranking member has thrown partisanship into what has historically been a strong, good bipartisan relationship,' Hill said.
Republicans and some of the committees' Democrats continued holding a more informal roundtable, as Waters marched over to a different building for a hearing of her own.
At Waters's breakaway hearing, one witness said Congress shouldn't just take a hard line on the Trumps, since some of World Liberty Financial's most problematic practices are mirrored by other leading companies. 'In many ways, the Trump family is simply copying common crypto business practices.'
World Liberty Financial markets itself as the future of decentralized finance. On its website, the company says that its governance system, based on a special token that can be bought but not traded, 'ensures that every $WLFI owner has an equal voice. From submitting proposals to casting votes, your participation is key to shaping our decentralized platform.'
Yet it is controlled by a small set of insiders who stand to profit at the expense of retail customers, according to Mark Hays, associate director for cryptocurrency and financial technology at Americans for Financial Reform and Demand Progress.
'While it is entirely right for members of Congress to raise concerns about how actions of the Trump presidency distort good policymaking and threaten the public interest, none of us here should lose sight of the fact that, in many ways, the Trump family is simply copying common crypto business practices,' Hays said. 'In other words, many of the potential issues we see with the Trump family's crypto practices are a feature — not a bug — of the crypto industry.'
Neither the Trump Organization nor World Liberty Financial immediately responded to a request for comment on the company's governance structure.
Waters's effort to disrupt the House hearing pointed to a continuing divide among Democrats. While six other Democrats joined her, several remained at the main hearing featuring industry witnesses, including Rep. Angie Craig of Minnesota, the House Agriculture Committee ranking member. 'I think that, with more publicity around the corruption, they're going to pay more attention.'
Democrats who stayed drew supportive statements from one of the industry's biggest players, Coinbase.
Craig and the other Democrats who stayed did, however, criticize the Trump family's deals.
'It is corrupt, it is wrong, and it makes this process of coming together to regulate crypto more partisan than it needs to be,' Craig said.
In the Senate, Gallego and his colleagues' statement focused on the substance of the stablecoin bill rather than on the Trumps' attempts to enrich themselves.
In an interview with The Intercept, Waters predicted that Democrats' focus will soon shift to Trump. 'It's coming,' she said. 'I think that, yes, they had some real issues, but I think that with more publicity around the corruption, they're going to pay more attention.'
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