There is a cryptocurrency angle for Wyoming, but it must follow an economic development strategy that cannot be tainted or influenced by personal interest — and currently Sen. Cynthia Lummis has an undeniable financial conflict of interest.
I don’t think she has an underhanded motive for promoting bitcoin. But it’s not up to each senator or representative to decide whether conflict of interest regulations apply to them. Lummis needs to sell her five bitcoins, which collectively are worth about $200,000.
The laws pertaining to digital currency have a material impact on Lummis’ personal financial situation. Since her swearing in, bitcoin prices have impacted her net worth by $160,000, according to my calculations. It’s difficult for anyone not to have an unintended bias when the stakes are that significant.
This is not nitpicky housekeeping. Members of the U.S. Congress write the tax laws, and tax treatment of cryptocurrency is being actively debated.
Today a tax loophole classifies digital currencies as property, which means that unlike stocks and mutual funds, individuals can bypass the wash sale rules. That means if a person bought bitcoin in May for $50,000, he or she could sell it today for $40,000, immediately buy it right back, but nonetheless take the $10,000 loss on their tax return. It’s a sweet deal — and one that needs fixing. Doing so, however, will impact the attractiveness of Lummis’s own investment.
There is also the issue of whether a bitcoin is categorized as a currency, property or investment. This matters because, for example, if a person buys bitcoin for $30,000, its price increases to $40,000, and the person then uses it to buy a new truck for $40,000, it brings up the question of how the $10,000 gain should be treated as a tax matter. Is that gain taxed as a short- or long-term gain, and can it be deferred?
All of this is more troublesome because Lummis primarily talks about only one of the over 10,000 brands of cryptocurrency. Last month she was one of six headline speakers at the bitcoin2021 conference, and in a recent interview said she is an “advocate for bitcoin.”
Bitcoin may be the most popular form of cryptocurrency, but it nonetheless represents less than half of all cryptocurrency volume. Yet in a recent CNBC interview, Lummis mentioned bitcoin 37 times but never any of the digital currency’s competitors. This eventually spurred the reporter to ask her about Ethereum, the second most popular crypto currency. To that the senator responded, “The only one I really understand is bitcoin.”
This is no different than if Lummis owned shares of Disney and went on cable news encouraging Americans to buy shares of Disney.
To my knowledge, this is the first time in our modern-day Congress that a member actively and openly uses their elected office to advocate for an investment that they own personally.
Finally, Lummis is giving out financial advice without regard to the laws, regulations, and standards we have for financial advisors. The Securities and Exchange Commission and the Investment Advisors Act of 1940 exist to protect people from investment advice that does not follow protective guidelines, such as not understanding the person’s individual financial situation and risk appetite.
In the same CNBC interview, Lummis offered brazen investment advice to everyone, such as “I see bitcoin as a great store of value”; “I encourage [Americans] to save bitcoin for their retirement”; and “I think one of the strongest stores of value for the long run is bitcoin.”
If your grandmother had taken her advice last April, when she said in a national interview, “Save money in bitcoin … I’m a big advocate for bitcoin,” your grandmother would have lost a third of her investment in a matter of weeks.
There is no question that Lummis is a genuine and honest fan of cryptocurrency. She owned bitcoin long before becoming a senator and I believe her enthusiasm is driven by a genuine passion for cryptocurrency, not self-dealing. But none of this matters when it pertains to a senator separating her personal interests from that of her official duties.
If Sen. Lummis wants to use her power in Congress to increase demand for cryptocurrency generally, she must first eliminate her own personal financial interest. We need to know that those who use their power and influence to shape and advocate laws and regulations have neither the appearance, nor the actual existence, of conflicts.
David Dodson is a resident of Wyoming and an entrepreneur who has helped create over 20,000 private sector jobs. In 2018, he was a candidate in the Republican Primary for Wyoming’s US Senate. He is on the faculty of the Stanford Graduate School of Business, where he teaches courses on small business and entrepreneurship. He is a frequent guest on Fox Business and CNBC.