Advertisement

Coinbase and Its CEO Prep ‘War Chest’ for Pro-Crypto Politicians

(Bloomberg) -- With two of his most-formidable competitors in prison or likely headed there soon, Brian Armstrong has emerged as arguably the most-powerful leader in the digital-asset industry. And his ascendancy comes at an intriguing time: the start of campaign season for a US election that his company has described as “the most consequential in crypto’s history.”

Most Read from Bloomberg

The Coinbase Global Inc. chief executive officer’s rising influence is being bolstered by his own resurging affluence, with Armstrong putting some of his fortune to work to help fund what he calls a “war chest” to support crypto-friendly politicians as the industry remains pressured by a US government crackdown that began last year. He personally has donated $1 million to the Fairshake super-PAC and Coinbase itself kicked in another $24.5 million, according to Josh Vlasto, a spokesperson for the political action committee.

Armstrong and his company account for about one-third of the $85 million that the group says it has raised so far. Coinbase has described the PAC’s goal as spending big to amplify “crypto’s superpower of grassroots support,” a reminder that the industry’s influence on politics remains even after the downfall of mega-donor Sam Bankman-Fried.

“FTX, Voyager, Genesis went down — many of Coinbase’s peers actually went down,” said Owen Lau, analyst at Oppenheimer & Co. “Coinbase is still standing and fighting for the industry. He needs to get this done.”

Armstrong has plenty more to spend, should he choose. Last year’s massive rebound in the company’s stock lifted his personal fortune to an estimated $5.8 billion, a jump of about 300% from the beginning of 2023, according to the Bloomberg Billionaires Index. He cashed in $78 million worth of shares in the company last year, according to data compiled by InsiderInsights.com.

Coinbase didn’t immediately respond to a request for comment on the political spending.

Read More: Coinbase Hires Former UK Chancellor Osborne in Advisory Role

Coinbase itself is in a legal battle with the Securities and Exchange Commission, which last year accused the company of running an unregistered exchange, broker-dealer and clearinghouse for tokens it deemed to be securities. Coinbase has disputed the allegations, claiming the SEC is overstepping its bounds.

Fairshake supports pro-crypto candidates from both the Democratic and Republican parties. Its biggest spending so far has been on behalf of Representative Patrick McHenry, a North Carolina Republican, who has announced he won’t seek re-election. Fairshake has also supported Representatives Dusty Johnson, a South Dakota Republican; Josh Gottheimer, New Jersey Democrat; and Tom Emmer, a Minnesota Republican, among others, according to data from OpenSecrets.

“The crypto community is united to help elect leaders who support American innovation and job creation,” Fairshake’s Vlasto said in a text message. “It is long past time for Congress and the administration to pass strong and responsible regulation that supports innovation and growth, protects consumers, and roots out bad actors.”

More details about the super-PAC’s donors are expected to be revealed Wednesday through a filing with the Federal Elections Commission. According to Vlasto, Fairshake also received $20 million from the venture-capital firm Andreessen Horowitz, which has been very active in raising funds for crypto companies. Other donors include Ripple, which gave $20 million, and venture-capital firm Electric Capital, which donated $500,000, he added.

“Supporting candidates, from both parties, who take a long-term view of technology is an important part of ensuring that clear rules of the road are developed for blockchain technology and digital assets,” Collin McCune, head of government affairs at Andreessen Horowitz, said in a statement. “Crypto is at a tipping point in the U.S. and without a clear regulatory framework for entrepreneurs, we risk sending innovation abroad while harming consumers by allowing bad actors to continue to slip through the cracks.”

To critics of the industry, Coinbase’s lobbying is a reminder that the industry’s influence in Washington remains, even after the FTX exchange collapsed. FTX’s imprisoned former leader Bankman-Fried shook Capitol Hill with his vast political spending before his subsequent downfall and conviction on fraud charges left deep scars on the industry. One of Armstrong’s other main competitors, Binance’s Changpeng “CZ” Zhao, is out on bail as he awaits a sentence of as long as 18 months in prison after pleading guilty to failing to maintain an effective anti-money-laundering program at his crypto exchange.

“Because crypto still has no legitimate use and is the preferred financial product of speculators, gamblers, predators, and criminals, it will remain difficult to get most policymakers to take their baseless claims seriously,” said Dennis Kelleher, president and CEO of the advocacy group Better Markets. “However, money talks in Congress and on the campaign trail so they will undoubtedly have some success in buying allies who will push crypto’s priorities over the public interest.”

Armstrong slowed his stock sales when Coinbase shares were down in 2022, but accelerated the sales last year. In late 2022, he announced plans to sell about 2% of his Coinbase holdings over the next year to fund scientific research and companies. Still, his biggest stock sales — amounting to $292 million in total — occurred in 2021, the year Coinbase shares began trading on Nasdaq. Coinbase said its direct listing required large existing stockholders to sell a portion of their holdings to create liquidity for the market.

Executives selling into share-price strength is “very common” among corporate insiders and shouldn’t be interpreted as an indicator that the stock price is peaking, said Jonathan Moreland, director of research at InsiderInsights.com.

“Mr. Armstrong made his killing in his stock at the hyped-up IPO price back in April 2021,” Moreland said. “His decision to accelerate his sales last year is also unsurprising after his share price rose again in concert with prospects for the SEC approving a Bitcoin ETF.”

--With assistance from Kristine Owram and Bill Allison.

(Adds other donors in 10th paragraph.)

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.