Bitcoin: political currency of the future?
FEC issues draft opinion approving the use of bitcoins for political donations
The Federal Election Commission recently released a draft advisory opinion responding to a request by the Conservative Action PAC to accept and spend bitcoins. If the Commission approves its draft opinion, the digital currency will be treated as an “in-kind contribution.” Committees would need to convert bitcoin contributions to USD before making disbursements.
Bitcoins are a form of digital currency transferred by computer or smartphone. Bitcoins are not regulated by a central authority, transactions do not go through an intermediate financial institution and are relatively anonymous, and bitcoins have a volatile exchange rate. For all of these reasons, bitcoins pose unique challenges for campaign finance.
The exchange rate between the bitcoin and the USD is constantly in flux. This presents a compliance challenge and makes sustaining reliable revenue streams difficult for a campaign. According to the FEC draft opinion, “between May 2012 and May 2013, the value of one bitcoin ranged between $5 and $237.” As of 10am today, one BTC was equal to $429.20. The price decreased to $426.70 within 15 minutes.
The opinion requires a bitcoin donation to be converted and deposited in USD as soon as it is received by a committee –- regardless of the current exchange rate. The Commission wrote that bitcoin contributions should be valued “based on the market value of bitcoins at the time the contribution is received.”
The volatility of the digital currency adds an extra layer of complexity to the issue contribution limits, creating an extra step in tracking whether or not the donation exceeds a donor’s contribution limits.
One of our primary concerns at Red Curve Solutions is forecasting accurate cash flow for our clients. Bitcoins are not a reliable source of revenue for political campaigns, especially because campaigns are short term by nature. Accepting bitcoin donations would be the equivalent of a campaign investing in the stock market – both are not conducive to producing a steady stream of income in an environment where money is spent and raised quickly.
Another consideration is the anonymity of bitcoin transactions. Because there is no intermediary bank or regulating financial institution, transactions are difficult to trace. Anonymity has been a leading factor in the relationship between bitcoins and illegal activity. Recently, the federal government shut down the website, Silk Road, that used bitcoins as its only currency. The site was a marketplace for buying and selling illegal goods and activities. The anonymity of bitcoins poses challenges in verifying donor data. Per FEC regulations, the first and last name, address, employer, and occupation of donors contributing over $200 must be itemized. Collecting and verifying donor data for these donations would require additional attention.
The commission is expected to review public comments and issue a final decision later this month. The logistical considerations and lack of regulatory body governing bitcoins should raise red flags for political organizations. However, it is probable that the FEC will approve and move forward with its draft opinion, setting a new precedent for alternative currency in campaign finance.