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Bitcoin Woos Washington to Ensure Lawmakers Don't Kill Industry

Wednesday, 08 January 2014 11:42 AM

Bitcoin advocates entered Washington a year ago with the shadow of a federal criminal investigation cast over the virtual currency industry.

Their first mission: Win over, or at least not alarm, the U.S. Treasury Department’s Financial Crimes Enforcement Network, called Fincen.

“Our first reaction, particularly when I was on the law enforcement side, when we had something new was ‘Huge risk! Huge risk for money laundering. It’s bad!’” Fincen Director Jennifer Shasky Calvery said in an interview this week. “But we’re the Department of the Treasury, we can’t have that knee-jerk of a response.”

In March, Fincen issued rules stating that Bitcoin businesses may be considered money transmitters, which must abide by anti-money-laundering laws. The industry welcomed the move because it provided a road map for complying with regulations, and helped erode Bitcoin’s reputation as an enabler of illicit transactions.

That was the “starting-gun shot” of Bitcoin’s activities in Washington, said Marco Santori, chairman of the Seattle-based Bitcoin Foundation’s regulatory affairs committee, who said he met with Shasky Calvery.

After starting 2013 with no Washington presence, Bitcoin now has its own foundation and industry representatives as ambassadors to Capitol Hill. It’s being courted for business by professional lobbyists.

Bitcoin Buzz

Adrian Fenty, Washington’s former mayor now with the legal firm Perkins Coie, is helping develop a political strategy, at the same time fans of Ron Paul, a former libertarian-leaning Republican who ran for president in 2012, are turning up the buzz around Bitcoin.

The outreach is aimed at ensuring that wary lawmakers don’t kill the embryonic industry and regulators provide a clear set of rules to play by. A pair of mostly friendly Senate hearings in November showed Bitcoin’s early Washington moves — though decentralized like the currency itself — are working so far.

Even Senator Chuck Schumer, a New York Democrat who in June 2011 described Bitcoin as “an online form of money laundering,” sounded more upbeat about its prospects.

“As a rapidly growing hub for technology and venture capital, New York has every interest in building on the promise that technologies like Bitcoin have to revolutionize payment systems, or even form the building blocks for whole new technology platforms,” Schumer said during a Nov. 19 hearing.

The currency’s rapid rise in value, from about $13 per Bitcoin in January 2013 to about $840 yesterday, according to the CoinDesk Bitcoin Price Index, also is helping to push it onto Washington’s radar.

Courting Lobbyists

Yet some lobbyists, many of whom want to represent Bitcoin ventures, warn that as the virtual currency’s popularity broadens, such powerful industries with well-established Washington operations as banking and credit-card companies might begin to turn on a perceived threat.

“With the Senate hearings, they may have awoken a sleeping giant who is less enamored with virtual currency than they are,” said Heather Podesta, a lobbyist who is seeking clients in the Bitcoin realm. “As with any new industry they’ll probably have to play some defense as people begin to raise questions.”

Bitcoin, created five years ago by an anonymous programmer or programmers known as Satoshi Nakamoto, exists as strings of computer code. “Miners” unlock new Bitcoins by using ever-faster computers to solve complex mathematical problems. The will only be 21 million Bitcoins created, a ceiling that potentially enhances each one’s value.

Golden Likeness

Its decentralized and limited production appeals to investors and libertarians in the way that gold does, although skeptics see little more than a new financial bubble.

The foundation, which tech entrepreneur Peter Vessenes began in July 2012, says on its website that its mission is to standardize, protect and promote Bitcoin. The organization has members representing the biggest investors and companies in the industry, including Lightspeed Venture Partners, a Menlo Park, California venture capital firm, and Bitcoin Investment Trust, a virtual currency fund run by New York-based SecondMarket Inc.

The foundation employs an executive director, a finance director, general counsel and a Washington-based spokeswoman — all paid in Bitcoins.

The Washington employee, Jinyoung Lee Englund, was a scheduling aide to Representative Cathy McMorris Rodgers, a Washington State Republican. Englund worked on Republican Mitt Romney’s 2012 presidential campaign, and at the Heritage Foundation, a Washington-based group that promotes reduced government regulation.

Bitcoin Executives

Patrick Murck, the foundation’s general counsel, works out of Seattle and said he is in Washington about one week per month. Murck previously worked at a Washington-based law firm that specializes in telecommunications issues.

Also working the halls of Congress and regulating agencies for Bitcoin are investor representatives. Jeremy Allaire, of Circle Internet Financial, which received the second largest venture capital investment in Bitcoin, testified in November at a Senate Homeland Security Committee hearing.

Perkins Coie, which also employs President Barack Obama’s former White House counsel Bob Bauer, doesn’t lobby but does provide legal services and strategic advice for the foundation and an estimated 90 percent of the Bitcoin industry, said Lowell Ness, a partner based in Palo Alto, California.

Fenty Ace

He said the firm has about 20 employees focused on Bitcoin. Among them is Fenty, who moved to California after losing his 2010 re-election as mayor of the nation’s capital.

“He’s our ace in the hole in terms of DC strategy,” Ness said about Fenty’s work on Bitcoin for Perkins Coie. “He can connect us with just about anybody.”

Fenty also is an adviser to Andreessen Horowitz, which in December made the largest venture capital investment, $25 million, in a business seeking to commercialize Bitcoin. Bloomberg LP, the parent of Bloomberg News, is an investor in Andreessen Horowitz, founded by technology industry veterans Marc Andreessen and Ben Horowitz.

The industry in October received one of its biggest breaks in Washington when the Federal Bureau of Investigation took down Silk Road, an online drug and weapon marketplace where users paid in Bitcoin. The resolution of the investigation without criticism of the virtual payments provided credibility that was followed by the encouraging Senate hearings.

Bitcoin Donations

The Federal Election Commission now is weighing how to handle Bitcoin in the campaign-finance arena. Already several super-political action committees dedicated to Bitcoin have filed FEC paperwork, and Representative Steve Stockman, a Texas Republican, recently began accepting donations in Bitcoin to his Senate campaign.

Nick Spanos, a former Paul activist and the head of a Republican data company, gave Stockman a tour of his Bitcoin education center in New York City on New Year’s Eve. He said in an interview that Stockman “gets it. Not all politicians have the ability to accept new concepts into their minds.”

One way to motivate them, he said: “Everyone should send Bitcoin donations to their politicians. Then they’ll figure everything out overnight.”

© Copyright 2019 Bloomberg News. All rights reserved.

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Bitcoin advocates entered Washington a year ago with the shadow of a federal criminal investigation cast over the virtual currency industry.
bitcoin,lawmakers,currency,electronic digital
Wednesday, 08 January 2014 11:42 AM
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