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Cryptocurrency’s rising influence on politics is undeniable, but is it financially forward-thinking to invest in digital currency for political campaigns? Cryptocurrency is already playing an active role in financing campaigns in 2024.
According to a report by a Federal Reserve survey found that only about 7% of Americans owned or used crypto in 2023. And 69% of Americans polled in swing states in 2024 still held a negative view of crypto. Yet, as per a report by TIME magazine, a whopping $119 million has been poured into US elections in 2024.
While this is a step forward it also is bringing both possibilities and hazards. Hence, any candidate and or voter need to understand these dynamics. Keep reading to understand the nooks and crannies of Cryptocurrency in the world of politics. This article will also cover its implications, challenges and limitations.
Cryptocurrencies have made headlines in recent election cycles. The US major political stakeholders like former President Donald Trump have embraced the use of cryptocurrencies as a mode of fundraising.
Trump, who is known for his scepticism regarding the use of crypto has now overcome it. This can be seen as now he is accepting crypto donations for his campaign. With this development, he also has given cryptocurrency industry defenders such as Messari CEO Ryan Selkis a platform to speak about their beliefs.
This move by the former US President indicates that the asset class is a political tool. Thus, the Crypto industry in the first half of 2024 has spent over $80 million on the US elections to shape policies and endorse friendly candidates. Such a growing investment clearly shows that digital assets are not an outlier but rather are widely used in political funding
Cryptocurrency appeals to campaigns because it attracts tech-savvy voters and allows for relatively quick fundraising. Currently, in states like Arizona, Colorado, and California, the use of cryptocurrencies for donations has been made legal so long as there are sufficient regulatory controls. These state and federal rules allow PACs and candidates’ acceptance of cryptocurrencies, so long as reporting and conversion take place to fiat money.
While crypto offers exciting opportunities, it also comes with regulatory hurdles. At the federal level, the Federal Election Commission or FEC allowed cryptocurrencies since 2014, but implementation of rules remains stringent. According to these laws, campaigns can take cryptocurrencies as ‘digital assets’ but cannot spend cryptocurrency in their operations. The instability of cryptocurrency is a bonus because there are tendencies in differences before the conversion to the US dollar.
There are contradictions on the state level regarding their legal status concerning crypto donations. For instance, Michigan and Oregon, have prohibited such contributions citing attributes highly related to transparency coupled with elasticity of price as key influencers.
Washington, like some other states, regulates cryptocurrencies as cash, limiting donations to $100, while requiring a conversion within five business days. This set up of laws presents numerous challenges to campaigns and thus exposes the campaign to numerous compliance issues.
From a candidate’s perspective, offering to transact in cryptocurrency can demonstrate progress and readiness to embrace efficient technologies, something that is especially good for attracting youthful, technology-literate voters.
This population segment is getting more valuable with recent surveys revealing that about 19% of the American voters have owned one form of cryptocurrency or the other. Crypto acceptance can also help campaigns look for sources of funding outside the usual circles within which they operate.
However, it has been seen that those participating in the crypto market stand to lose big too due to the unstable characteristic of the asset. Envision a campaign collecting $100,000 through Bitcoin and then that currency dips by %20 after just one week.
This volatility makes crypto a bad long-term investment to have. Also, if campaigns fail to have sound KYC procedures in place, campaigns are liable to receive donations from unknown foreign sources in violation of campaign finance laws. Legal advice strongly suggests that campaigns engage with compliance advisors to manage these risks.
According to FEC 2022 data, there has been an increase in crypto donations to federal campaigns. Crypto donations increased 500% between 2018 to 2020, showing that cryptocurrency is playing a larger role in American elections. However, only around 7% of the US adult population owns cryptocurrency and this is down from previous years. While it continues to seize power in politics, crypto is still a marginal industry as opposed to PACs and corporate funding.
Cryptocurrency presents both a compelling opportunity and a risk for political campaigns. On one hand, it holds the potential to involve young, IT-active voters and add new types of funding. On the other hand, it brings legal risks, fluctuation in price and possible compliance issues. Any campaign willing to venture into crypto ought to be ready to tackle all these issues as they unfold.
In other words, those who would run in elections do not stand to lose hard money by popularizing a crypto token as a symbol of their campaign. It can be seen as a way of reaching people of today’s generation, but there is no such thing as a “safe bet” in Cryptocurrency in politics.
