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How the left is tackling crypto

To their backers, crypto assets offer a liberating, egalitarian alternative to conventional finance, allowing ordinary people to seize control of their finances away from big banks.

But this rhetoric is hitting a hard political reality of late: Widespread wariness toward crypto among policymakers on the left. And it’s causing new political fault lines to open up in the never-ending debate over the merits of crypto.

In the EU, this division has become starker in the European Parliament, which has debated several bills on how to regulate crypto. Many conservative MEPs are accusing their adversaries of politicizing a technology that they think should be nurtured — not smothered.

“The left hates Bitcoin because they cannot control it,” German conservative Stefan Berger wrote after fending off a bid from the Greens and Socialists & Democrats (S&D) to phase out crypto assets, such as Bitcoin, that run on energy-intensive software. The fact that “crypto values are determined by supply and demand is a thorn in the side of the left,” he opined.

“Some groups in the European Parliament have … a dogmatic agenda against Bitcoin and are using excuses to ban Bitcoin and cryptocurrencies,” said Pascal Gauthier, chief executive of Ledger, a company that offers a USB-like digital wallet for people to hold cryptocurrencies outside of exchanges. “If they represent the citizens of Europe [they should know] actually the vast majority … is against this.”

Not so fast, say lawmakers on the left. It’s not so much hate, but distrust.

“We’re concerned with the public and collective good,” said Dutch S&D MEP Paul Tang, citing concerns over false advertising, money laundering and just plain greed. In contrast, the right believes that “if it’s good for the economy, it’s good for us,” he added.

The Parliament debate has become heated in recent months, with some MEPs landing in the industry’s spotlight and drawing online abuse after citing crypto’s energy consumption and secretive inner workings.

At issue are two bills in the last stretch of legislative negotiations with EU capitals. The first will set investor safeguards and transparency standards for Europe’s market in crypto assets, dubbed MiCA. The second, known as the Travel Rule, aims to prevent illicit financiers from using the crypto market as a laundromat. The rules will have a long-standing impact on the bloc’s growing crypto market and could be used as a blueprint elsewhere in the world.

In the U.S. — where crypto’s lobbying muscle is more formidable — similar divides are opening up as Biden administration appointees take a harder line on crypto regulation. Democrats like Senator Elizabeth Warren are pushing for a crackdown on crypto’s carbon footprint and have warned platforms to get tough on possible Russia-sanctions busting. And progressives see top regulator Gary Gensler, the chief of the Securities and Exchange Commission, as one of their own when it comes to a tougher approach.

On the other side are Republicans like Senator Ted Cruz, who has welcomed Bitcoin in his state of Texas and is adamant that crypto assets will bring “enormous opportunities” and “vast amounts of wealth.” More broadly, the party has come out swinging against Gensler’s efforts to regulate the industry more closely.

Libertarian roots

Crypto has exposed the fundamental difference in economic beliefs between the two sides, according to Thierry Philipponnat, chief economist of Finance Watch, a Brussels NGO, who points out the deep influence of libertarianism. The market’s origins stem from Bitcoin’s bid to create a decentralized alternative to the financial industry and government oversight. Decentralization is a natural fit for the right’s pro-market policies, in contrast to the left’s preference for a social economy, he says.

“Crypto means ‘hidden’ in Greek,” he said. “It’s that libertarian culture, which is a distrust of state and sovereign entities.”

To be sure, there’s nuance beyond the left-right divide. Personal politics, character and age also play a role, and there are signals that political opinions among some on the left are changing. This shift is underway in Washington, where many younger progressives are embracing crypto’s startup scene. Those Democrats are now pushing back against regulations that could stifle the industry.

Then there’s New York City Mayor Eric Adams, an outspoken crypto backer who pledged to take his first three paychecks in Bitcoin.

More fundamentally, crypto offers plenty of features that the left can get behind, according to Robert Kopitsch, the secretary general for Blockchain for Europe.

“It allows for broader financial inclusion, more sustainable and transparent financial systems and ultimately also the ownership of your own data and identity,” he said. “Left-wing parties should love crypto.”

These internal divisions are playing out in Brussels as well, as MEPs weigh how far regulation should go.

Fighting climate change

The first political fight in Brussels emerged in March over crypto’s carbon footprint.

Most crypto assets, including Bitcoin, require massive amounts of electricity to run specialized computers that process and record transactions in an online decentralized ledger, known as a blockchain. Bitcoin’s blockchain, for example, uses more electricity than Poland does, triggering calls from regulators and central bankers to ban the so-called Proof-of-Work blockchain (PoW).

Spain’s Ernest Urtasun and Finland’s Eero Heinäluoma, who respectively hail from the Greens and the S&D, took up the fight to phase PoW out from Europe through MiCA. Their amendment fell short by a margin of seven votes in the final count for MiCA in the Parliament’s 60-member economics committee (ECON).

It wasn’t just the right that cheered the result. Greek S&D MEP Eva Kaili described the vote on Twitter as a victory for tech neutrality and innovation. Patrick Breyer, who’s affiliated with the Greens but hails from Germany’s Pirate Party, meanwhile, played down crypto’s energy consumption, which he said “is only a fraction of what the banking sector consumes.”

To Czech liberal MEP Ondřej Kovařík, the issue wasn’t so much that the amendment from Urtasun and Heinäluoma targeted climate change. It was that it needed to “be aware of the responsibility that we need to come with workable rules” — and the measure as written didn’t offer them.

Battling dirty money

The second battle, this time over the Travel Rule, followed a few weeks later.

Urtasun teamed up with Belgium’s Assita Kanko of the European Conservatives and Reformists to shepherd the measure through Parliament. It requires companies to check who’s sending funds, of any amount, in the form of crypto assets — and who receives them.

The S&D strengthened those rules by demanding extra identity checks on people who use digital wallets that hold cryptocurrencies outside of exchanges. These so-called non-custodial wallets are designed to safeguard against hackers and offer users a high degree of anonymity. That’s a problem for many on the left, who fear criminals could exploit that feature.

The vote passed the committee despite opposition from the center-right European People’s Party, the Parliament’s biggest political group — and promptly triggered an uproar from crypto companies. The amendments represented an invasion of privacy and would stall Europe’s future market for the Internet of Things, industry charged. The checks would also make it much harder for people to donate funds through crypto to outfits like WikiLeaks or support Kremlin critic Alexei Navalny, the Greens’ Patrick Breyer said.

Divisions among the S&D and the Greens then re-emerged. Kaili called for more proportionate rules, while Breyer questioned whether the extra checks are really needed for a market whose illicit activity pales in comparison to the traditional financial sector. Other Greens, like Gwendoline Delbos-Corfield, criticized some left-leaning colleagues for refusing to meet crypto lobbyists while disparaging the MEPs that do.

“I had colleagues saying you’re being influenced,” said Delbos-Corfield. “Why is it shocking [what] crypto is doing when others have been doing it for decades?”

Lobbyists’ hopes

For all the political fireworks, these changes might not survive the final stretch of talks between Parliament and EU capitals. To hedge their bets, crypto companies have ramped up last-minute lobbying campaigns and are looking to beef up industry representation, more broadly, in Brussels.

Binance, the world’s largest crypto exchange, is hiring boots on the ground and there’s plenty of scope for growth. The EU’s transparency register, a database that lists lobbying organizations in Brussels, lists only a handful of associations and representatives for the crypto companies, which collectively spend up to €650,000 a year on lobbying. That still pales in comparison to the $9 million the sector is estimated to have spent in Washington last year.

Crypto lobbyists are hopeful they’ll be able to bend the ear of EU treasury officials as the legislative negotiations between the Parliament and EU capitals come to a head this summer. National representatives have already pushed back against MEPs’ calls for extra checks on non-custodial wallets, for example.

MiCA negotiations may drag on beyond the summer amid deeper disagreements between the two EU institutions on how best to supervise crypto assets. But discussions with legislators should get easier over time, according to Blockchain for Europe’s Kopitsch, as a new generation of lawmakers emerges within the world of EU politics.

“The younger the politicians are, the more open they are to new technologies such as crypto,” he said. In the meantime, “we would like to welcome the silver foxes to the table and have a go at crypto.”

Zach Warmbrodt contributed reporting from Washington.

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