The recent collapse of the upstart crypto market has not only cost investors billions in wealth, it’s also threatening to diminish the industry’s once surging clout in Washington
That could be said for the entire digital asset market, which has seen more than two-thirds of its value evaporate since peaking at $3 trillion last fall. As the Federal Reserve cranks up its campaign to rein in inflation, investors are dumping risky assets in anticipation of rising interest rates. Startups that soared during the two stimulus-fueled pandemic years have started to fall to earth.
Top exchanges and industry associations pumped $9 million into Washington lobbying efforts in 2021, more than tripling their spending from the previous year, according to a report by the watchdog group Public Citizen. That drive accelerated through early 2022 and was amplified by tens of millions in campaign contributions from powerbrokers like FTX founder Sam Bankman-Fried.
That strategy might be too big to work. Market regulators and law enforcement have already targeted areas like insider trading, disclosure failures and investor-protection issues. And regulators, including top brass at both the Securities and Exchange Commission and the CFTC, have signaled that more investigations are likely.
The decline in digital asset markets, which coincides with losses in more traditional financial markets, is accelerating as hedge funds, crypto-based lending platforms and stablecoin issuers scramble for liquidity to salvage their projects. The market downturn is starting to bring down major crypto investment firms as well. Three Arrows Capital, a Dubai-based hedge fund, is teetering after marking hundreds of millions in losses from its investments in TerraForm tokens and other flagging digital assets.
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