Cryptocurrency markets have plunged this week, wiping out recent astronomical gains for denominations across the board. Bitcoin and Ethereum have led the pack, posting their largest losses in 14 months, and the total market cap for crypto shed nearly $1 trillion before a slight recovery at the end of the day on Wednesday
But one sector didn’t take much of a hit: political campaigns, which still face tight limits on raising and spending with crypto.
For better or worse, despite the popularity of Bitcoin and alternative coins, crypto isn’t likely to disrupt the campaign finance world any time soon. While a number of young candidates made media splashes in the 2020 cycle by announcing that their campaigns would accept Bitcoin contributions, the current federal rules restrict those donations to a degree that reduces such announcements to little more than PR stunt.
Despite the explosive growth of cryptocurrencies in the last year, however, those rules aren’t formalized. They stem from a 2014 Federal Election Commission advisory opinion specific to Bitcoin, but which allows room for materially similar transactions that would extend to alternative denominations as well. Candidates looking to appeal to new donors through cryptocurrency also bristle at other restrictions, such as the $100 cap on individual contributions—roughly three percent of the $2,900 limit for donations made with cards or checks.
But the FEC argues these policies aren’t simply one more instance of a stodgy federal government unwilling or unable to adapt to a transformative new technology. From the agency’s perspective, the features most responsible for crypto’s appeal—privacy and institutional independence—pose threats to the very foundation of campaign finance law.
The FEC is charged with oversight of election statutes enacted by Congress. As Commissioner Ellen Weintraub explained, when seen from that perspective, blockchain technology bears hallmarks of the most quaint form of legal currency: cash, which is sharply limited in campaign finance because it’s so hard to trace.
“The goal of the campaign-finance system is to enable the public (and the FEC) to follow the money that flows through our political system,” Weintraub told The Daily Beast. “Checks and credit-card transactions provide solid accountability. From the start, Congress has frowned on cash, since it’s essentially untraceable and very easily transferred.”
Weintraub added that those same attributes are significant features of Bitcoin—even though Bitcoin isn’t actually a so-called privacy coin—so it’s appropriate to treat the cryptocurrency as equivalent to cash.
While not entirely anonymous, Bitcoin gets pretty close. Transactions are tied to virtual addresses (“digital wallets”) and online aliases instead of legal names, and they take place beyond the purview of financial institutions and governments. Each transaction is recorded by altering the currency’s blockchain ID, a computer-generated jumble of letters and numbers, which makes the chain of custody exceedingly difficult to follow. Anyone can discreetly exchange crypto directly with anyone else anywhere in the world, as long as they both have the right wallets.
This means that much like cash, crypto provides an ideal vector for someone looking to skirt campaign finance laws.
Imagine a wealthy megadonor hiding behind the blockchain to evade contribution limits, funneling hundreds of thousands of dollars to a candidate through the digital wallets of middleman straw donors. Foreign nationals seeking to curry favor or influence elections could try the same technique.
From that angle, a bitcoin wallet could look a lot like an envelope fat with cash. And that’s why the FEC decided to treat it the same way. In its 2014 opinion, the agency said all Bitcoin donors must disclose their real names and addresses along with their donations, and it extended the $100 hard limit on cash to Bitcoin contributions as well.
Of course, crypto isn’t cash. But because it has value, the FEC treats Bitcoin donations like an in-kind contribution—such as gifts of a private flight, free or below-market rent, or a porn-star payoff. Political committees therefore have to report Bitcoin donations in terms of their monetary value, pegged to the market value at the time the donation is received.
Despite the limits, crypto gained popularity in the last election cycle, particularly among young candidates. Rep. Tom Emmer (R-MN), chair of the National Republican Congressional Committee and one of four co-chairs of the Congressional Blockchain Caucus, accepted Bitcoin. So did right-wing internet personality and crypto enthusiast Laura Loomer. And in 2019, two Democratic presidential contenders announced that their campaigns would accept Bitcoin: Andrew Yang, and Rep. Eric Swalwell (D-CA).
Yang no longer provides a Bitcoin option for his current New York City mayoral campaign, even though he’s running on a crypto-friendly platform. And in a Wednesday interview with The Daily Beast, Swalwell, who also belongs to the Blockchain Caucus, acknowledged the obstacles he incurred as a crypto pioneer.
“There were challenges to comply with the FEC. We went to some experts to build the backend side to make sure we could account for who's actually giving it,” he said. “That's what the FEC cares about.”
Swalwell continued that he had just been talking with the person who helped build the backend side for his presidential campaign to accept Bitcoin. “It took a lot of work to find a way to do it, except it was just [the one person],” he said, adding that they really were “working from scratch.”
“There’s nothing to model it after,” Swalwell said.
That could change, however, particularly if campaigns and fundraisers feel that they can seize on skyrocketing appreciation rates in crypto markets.
While the FEC requires committees to convert Bitcoin to cash before spending it on goods or services, they can sell the digital currency at any time—or stash them in a digital wallet to sell or liquidate sometime down the line.
Given the currency’s notorious volatility, political committees could receive donations when markets are low and cash in during a boom, possibly increasing a contribution’s value exponentially. And as the legions of hype-beasts that recently boosted the value of Dogecoin—an alternative cryptocurrency that started as a Bitcoin parody—crypto donors could even try to create a pump-and-dump opportunity for their candidate.
But as the market’s Wednesday plunge demonstrated, volatility can just as easily wipe out a campaign’s account. A $100 donation in the morning could easily be worth far less by the day’s end. Further, Wednesday’s crash was the partly result of a major policy change from a foreign government—China’s decision to bar financial entities from participating in cryptocurrency transactions.
As long as donations are capped at $100, campaigns don’t have much to gain or lose though. And there’s no sign that the FEC is itching for war with an increasingly fervent crypto community, even as candidates like Swalwell agitate for change, such as raising the donation ceiling to match the standard $2,900 limit.
Like many crypto enthusiasts, Swalwell accepts the risks as part of the currency’s fundamental appeal.
“I mean, just when we were accepting it, it was around $10,000. And now, I mean, it’s kind of high, like $40,000 last week.”
As The Daily Beast noted to Swalwell, Bitcoin was $60,000 as recently as May 8. And as Swalwell noted, it dropped back to $30,000 “or something like that” on Wednesday.
“I mean, that’s what makes it different,” he said.