Crypto industry braces for reckoning over Trump ties

Democrats have vowed to start investigation into president's family after sweeping victory in midterms

Crypto executives are bracing for a painful reckoning after the Democrats stormed to victory in the US midterm elections and vowed to investigate the Trump family and its ties to the industry.

Democrats made the president's alleged self-dealing and "crypto pay-offs" a defining issue in the elections, helping them win in Republican strongholds across the US.

Donald Trump, who had vowed to make America the "crypto capital of the world", pursued aggressive deregulation of the industry since taking office last year, signed landmark legislation welcomed by the sector and pardoned executives such as Binance co-founder Changpeng Zhao -- who had been jailed after pleading guilty to failing to protect against money laundering.

But digital assets have also been highly profitable for Trump personally, and last year he earned more than $1.16bn in crypto sales and token royalties. He has sold memecoins offering access to him, launched crypto ventures that came under scrutiny for foreign investment and accepted donations from crypto executives for projects such as the new White House ballroom.

Congressman Robert Garcia, who will chair the House oversight committee from January, has said he and his fellow Democrats will be "focused like a laser" on investigations, including into the Trump family and their crypto profits.

"The president himself has a crypto scheme where he's making billions of dollars," Garcia said on Wednesday. "This family is billions richer."

The Democrats' victory heralds the start of a potentially painful chapter for the industry, which had boomed under Trump.

That victory came despite the sector ploughing nearly $200mn into the midterms through the Fairshake Super Pac -- funded by companies including Coinbase, Ripple and Andreessen Horowitz -- and a separate Pac supported by stablecoin giant Tether. The donors lost many of the races they backed.

Over the past two years, Democratic senators such as Richard Blumenthal and Elizabeth Warren have repeatedly sent inquiries to companies such as Binance and stablecoin giant Tether over allegations of illegal activity. Those inquiries have largely been ignored by executives.

With majorities in both chambers, Democrats now have the power to issue subpoenas, which, if ignored, can lead to civil or criminal penalties.

"My advice, if you've been on the receiving end of a letter from congressional Democrats and didn't respond to their liking, get ready to answer them directly," said Ron Hammond, head of policy and advocacy at crypto market maker Wintermute.

"Even crypto firms who properly received various licences from Trump-appointed agencies while also being seen as major donors to Trump or his initiatives should expect scrutiny," he added.

A large portion of Trump's crypto profits has come from the family venture, World Liberty Financial, which will become a key focus for a Senate committee on investigations set to be chaired by Blumenthal that has been examining the illicit use of cryptocurrencies.

World Liberty has previously said that President Trump has had "no involvement in [the firm] since taking office".

Others in the crypto industry who have benefited under the administration also face scrutiny. Blumenthal sent notices to Binance over its alleged role in Iran-connected money laundering and to Tether over its alleged campaign to influence cryptocurrency policy in the US.

Binance has said it "has zero tolerance for sanctions violations or illicit activity, and . . . did not permit any transactions with sanctioned individuals".

Tether also has close ties to the US commerce secretary Howard Lutnick and Cantor Fitzgerald, the Wall Street bank run by his sons. Prominent crypto companies including Coinbase and Ripple, as well as the Winklevoss twins who run digital asset exchange Gemini, are among those that donated to Trump's ballroom.

The threat of investigations into the crypto industry mirrors looming probes into potential favourable treatment by the administration of companies across the business world.

Democrats will rely heavily on evidence and information from crypto companies and executives, who will have more incentives to comply with their requests than the Trump administration, according to Alex Zerden, founder of Capitol Peak Strategies, a risk advisory firm based in Washington.

"There's a high probability of non-compliance from the executive branch," said Zerden, who previously worked across the US government covering anti-corruption, financial enforcement and oversight.

"In . . . congressional investigations, we have seen increasing assertions of executive privilege to either reduce or preclude the disclosure of information -- that is only going to continue or significantly increase in the waning two years" of Trump's presidency, he added.

Congressional inquiries and hearings are televised and politicians are expected to publicise their efforts investigating corruption.

"There's a bit of a show factor to this," said Joshua Riezman, chief legal and strategy officer at crypto market maker GSR. "The pressure on the industry will be real and the expectations of this Congress will be different to the last one."

Some members of the crypto industry were "backing what was happening here or at least [were not] calling it out", said one former senior executive, talking about ties to the Trumps.

Many could get caught in the fallout, the executive added. "It's a matter of degree -- you've either done a deal with or been in alignment with somebody who is a Trump sycophant."

Still, some in the sector are hopeful that the efforts the crypto industry has made with Democrats in recent months will bear fruit.

"I think you're going to see a more targeted approach by this Congress, which has much more [crypto knowledge] of being able to separate the good from the bad elements of the industry writ large," said Riezman.