As campaigns waver on whether to open their digital wallets to cryptocurrency donations, they might get a warning from an unlikely source.
The Congressional campaign for Ron Watkins – the man widely considered the mastermind behind the QAnon conspiracy theory, and currently running for the Republican House in Arizona – has reported a 27% loss on bitcoin investments in its first six months as a candidate.
Watkins, a crypto enthusiast, received a letter from the Federal Election Commission this week with questions about the source of the donations in his first-ever campaign finance report, which he had already corrected once. While his fundraiser was still sad — a total of $51,000 for a man who once allegedly commanded an internet army — the new amended filing, submitted last week, revealed tens of thousands of dollars in previously unreported contributions. .
Among these previously unreported donations were two Bitcoin giveaways totaling $1,255. But, the filing also noted that 27%, or about $342, had already disappeared due to a collapse in the value of the currency.
With the inherent volatility of the crypto market comes additional headaches in the political world, as the FEC, wary of unregulated and murky digital currency, still does not treat cryptocurrency as a change. Instead, crypto donations are reported as in-kind contributions, such as a private theft or porn star payoff. Additionally, donation amounts were not officially sanctioned at more than $100, although they were not officially capped either.
This “in kind” label creates an additional step: liquidation. Political committees must declare the value of a crypto gift as market value at the time the gift is received, but, crucially, they cannot simply spend it. If they really want to use their Bitcoin, they must first take another step and convert it to dollars, like with a stock.
But since cryptocurrency is much more volatile than stocks, the lag between giving and converting can make a big difference. And that’s what the Watkins campaign discovered.
When Watkins first ran for Congress on October 17, 2021, Bitcoin was valued at around $62,000, and a few weeks later hit its all-time high of over $68,000. But on Dec. 31, when the Watkins campaign priced its final holdings for the year, crypto markets went through a series of wild swings and crashes, and Bitcoin had fallen around 25%.
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In other words, if Watkins had kept a $100 Bitcoin donation in October, it would have been worth $75 by the end of the year.
But Watkins’ two bitcoin donations came at a particularly difficult time, just before a December “flash crash” that wiped out nearly 20% of bitcoin’s market value. It was also around the time Watkins announced a new Bitcoin campaign donation model, involving a website that “you may or may not find”, though he assured supporters “it’s real”.
“The goal is to prove to haters that we can raise money and we can win,” Watkins said.
It’s impossible to say how many applicants have decided to accept Bitcoin, and poorly understood reporting requirements make it difficult to know for sure how many have received contributions, although experts agree the number has exploded in recent years. And of all these committees, the Watkins campaign appears to be the only one to report a detailed loss on its Bitcoin donations, according to federal records. And this fact suggests that even the biggest backers of crypto in Congress are not comfortable entrusting their investment to the temperament of the market, i.e. they are much more inclined to liquidate immediately. , rather than holding on and hoping that they will be transported to the moon. .
For example, take Blake Masters, a far-right Republican candidate running for Senate in Arizona and a longtime vocal crypto advocate.
Like Watkins, Masters went on a crypto fundraising spree in December. Instead of holding on to those donations, however, Masters cashed in as quickly as possible, but the market was so volatile that even he was losing value.
In late December, Masters offered supporters the chance to purchase an NFT version of a 2014 book he co-authored with his tech backer and billionaire boss, Peter Thiel. For the sale, Masters created 99 NFTs – digitized, unique collectibles tied to a certain type of cryptocurrency – and put them up for $5,800 per pop, the equivalent of a maximum campaign donation. . They exhausted in three days, earning the campaign almost exactly $574,200, more than a third of its fourth-quarter revenue.
Or, he should have brought in as much. A look at Masters campaign documents from the time show that during this three-day period, his committee received and converted over $165,000 in crypto cash donations. But in those 36 hours, the cryptocurrency markets crashed. Masters most often took donations below the $5,800 amount, with some even splits, and sent $1,132 in processing fees to Coinbase.
And although the Masters campaign has been accepting digital currency since September, around the time it suggested the US responds to China’s crypto crackdown with a “Bitcoin Strategic Reserve” – it appears to have received no crypto input until the NFT blitz three months later.
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The Watkins and Masters campaigns did not respond to a request for comment.
It is not clear if the trend will continue. Masters has announced another round of NFTs, this time sold in “packs” of varying quantities, at a range of prices. But unlike the first round, the campaign store this time does not offer donors the option to automatically link their crypto wallet. Instead, it offers credit card or Apple Pay options. Supporters who wish to donate with crypto must first submit a special request via email or text.
This means that this time around, Masters will get all the cachet of blockchain, with the reliability of good old dollars – and the risks will fall on its donor-investors.
He is not alone. Earlier this month, Bloomberg reported that political donors to the crypto industry still prefer to give in dollars, with total crypto contributions below $600,000 in 2021, making Masters one of the far more important.
Blockages include onerous reporting requirements and illiquidity, Bloomberg reported, with the conversion requirement creating a layer of downsides. And without an overhaul of the notoriously slow FEC, the administrative and opportunity costs associated with crypto will still make digital currency harder than it’s worth, though young contenders will no doubt continue to wave it like a cultural banner. , even if they don’t. I see no return.
(The FEC seems to have gone a step further, omitting the previous $100 limit from its applicant guide last year.)
As for Watkins, the public won’t know if he’s still HODLing his Bitcoin until his next campaign finance report, due in April. But after last year’s crashes, including a “flash crash” in early December that wiped out nearly 20% of Bitcoin’s value, Bitcoin still hasn’t broken $50,000. He currently sits almost exactly where he was on December 31, the day he reported his unrealized loss.
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