Harris triggers crypto tug-of-war between Democrats

Vice President Kamala Harris is unleashing a burst of unity among Democrats. Behind the scenes, a fight over cryptocurrency is threatening the good vibes.

Competing factions of Democrats are pushing Harris to adopt their position on crypto policy, an issue that’s taken on outsize political importance because of the industry’s massive spending on this year’s elections.

Pro-crypto Democrats are lobbying Harris to start taking a friendlier approach to digital asset firms, which have faced tough enforcement actions from President Joe Biden’s regulators. They say the party should embrace the technology’s potential and not cede the issue to former President Donald Trump. Trump is courting crypto enthusiasts and attracting campaign cash from several wealthy industry leaders.

The push risks alienating prominent skeptics like Sen. Elizabeth Warren of Massachusetts who have argued that crypto poses major risks to consumers, the financial system and the fight against money laundering. A softer approach would also be a break from Biden.

“If she listens on the issue of enforcing our income tax laws, our sanctions laws, our human trafficking laws, she’ll continue to reach the same conclusion that the Biden-Harris administration has made,” said Rep. Brad Sherman , a fellow California Democrat who is urging Harris to maintain the tougher status quo.

The crypto rift highlights the policy tensions that are boiling beneath the surface of Democrats’ honeymoon with Harris. It offers a preview of a looming internal battle over economic policy that Harris will be thrust into as the party’s presidential nominee.

Harris hasn’t taken a position on digital asset policy, but her camp has had contact with crypto representatives in recent weeks, according to three people with direct knowledge. Some pro-crypto Democrats on Capitol Hill are seeking to go further by setting up a crypto roundtable discussion with Harris’ team.

“It’s important to use this opportunity to reset relations with the broader community and the industry,” said Rep. Wiley Nickel of North Carolina, who is among the pro-crypto Democrats working to set up the roundtable.

The push comes as the crypto industry is planning to spend more than $160 million to influence this year’s elections. The goal of crypto executives and investors is to elect industry allies who will usher in friendly policies and to keep potential critics out of office. They argue that tens of millions of people care about the issue, but it's unclear how motivating it will really be with voters. The Federal Reserve said in May that only 7 percent of adults held or used crypto last year, down 5 percentage points from 2021.

With Harris poised to enter the debate, an array of high-profile Democrats including Senate Majority Leader Chuck Schumer and former House Speaker Nancy Pelosi have signaled support for the industry in recent weeks. In May, both voted in favor of legislation sought by digital asset firms. Schumer said in an interview earlier this month that he'd like the Senate to pass further crypto policy.

“The fact that she's outreaching and signaling openness suggests dissatisfaction with the status quo,” said Rep. Ritchie Torres , a New York Democrat who has long advocated for the industry.

Last Saturday, Torres and 13 other House Democrats wrote a letter to the head of the Democratic National Committee arguing that the party should adopt pro-crypto policies in its platform, citing a fresh opportunity with Biden bowing out.

"If the approach was going to be identical to Joe Biden, I wouldn't be on the phone talking with you," Nickel, who led the letter, said in an interview. "We wouldn't be talking about meetings, we wouldn't be talking about public policy issues. And so I think the initial steps or initial indications we have are good, and we'll continue to see more in the coming weeks."

Spokespeople for the Harris campaign and the vice president's office declined to comment.

Senate Agriculture Chair Debbie Stabenow (D-Mich.), who is working to pass a bill that would revamp crypto regulations, said she also feels "very good" about Harris' approach to the issue after discussing it with her. Stabenow's bill has faced resistance from crypto-skeptic Democrats including Warren, who has said it wouldn't do enough to combat crypto crime.

“She knows what we're doing, and she's very interested in seeing what happens," Stabenow said of Harris.

The industry sees the Harris dynamic as an opening to keep building support.

"She's neutral, and we need to provide education to the campaign to understand why this is a critical issue," said Sheila Warren, CEO of the Crypto Council for Innovation. "The assumption that every Democrat is against it apart from Liz Warren is crazy."

One new development is giving crypto critics a reason to be hopeful.

Harris is recruiting to her campaign Biden Treasury Department Undersecretary Brian Nelson, who has played a lead role in the administration's efforts to combat financial crime involving digital assets.

“It's always good to have someone advising our leaders about the threats to national security that come from holes in our anti-money laundering rules," Elizabeth Warren said in an interview.

For now, Warren isn't raising alarm about Harris' approach to the crypto world.

“I don’t see a move toward a policy that embraces terrorists and ransomware scammers,” she said.