Bitcoin
Michigan Congressman Reaps Windfall From Cryptocurrency Investing
Washington – Michigan, US Representative Shri Thanedar used his congressional campaign committee to make a big bet on cryptocurrency this winter – and so far, it has promised to pay big dividends.
The Detroit Democrat, a millionaire businessman who largely self-financed his campaigns, received $3.7 million in campaign money this year and used his political committee to invest the money in a cryptocurrency exchange-traded fund (EDF). called Grayscale Bitcoin ETF (GBTC).
In just three months, the bitcoin investment produced $1.3 million in profits and interest income, which he listed in his last quarter’s campaign finance report — a roughly 35% return on the campaign committee’s investment. of Thanedar. The campaign made five purchases of GBTC from January 3 to the end of March, during which time the fund’s value grew by an impressive 82%.
Investing campaign money is generally legal under federal election regulations, which allow political committees to transfer funds for investment purposes to other accounts. Funds invested must only be returned or transferred to the campaign account before they can be used to make campaign expenses under Federal Election Commission rules.
Thanedar said he hopes to cash out when he needs the money for his Democratic primary campaign, starting in June. Meanwhile, Thanedar said, one of the benefits of investing in crypto is that it can skip long hours of dialing to get dollars from campaign donors.
“There’s a lot of good work I can do if I don’t have to make these calls,” Thanedar told The Detroit News.
Thanedar said he came up with the idea after learning about a few other candidates investing, including the Senate campaign of U.S. Rep. Adam Schiff, D-Calif.
While investing campaign funds is permitted, it is relatively rare for candidates to do so, in part because of the financial risk and costs involved, campaign finance experts said.
“If you’re dealing with a type of investment vehicle that would be available to anyone in the public, you can generally do it,” said Brad Smith, a Trenton native and former chairman of the Federal Election Commission. “That’s not common, in part because you could lose all your money. But it can be done.”
Candidates don’t invest more often because they are eager to spend the money as soon as it arrives on campaigns and other costs, said Smith, who teaches election law at Capital University Law School in Columbus, Ohio.
“When you’re running for office, you don’t want to hire investment managers,” Smith said.
Additionally, many candidates probably don’t want to waste their donors’ contributions, especially with a volatile cryptocurrency like bitcoin, experts said.
However, the calculation may be different for self-funded applicants. Thanedar has lent his campaign more than $3.3 million since December, much of which has come from his own pocket. It closed the quarter reporting more than $5 million in cash reserves.
Thanedar is facing primary challenges from former state Sen. Adam Hollier and Detroit City Councilwoman Mary Waters, both of Detroit. In the last election, Thanedar spent $6 million on his first U.S. House campaign for Michigan’s 13th District in 2022.
More: Congressional Black Caucus Chair Endorses Hollier Over Rep. Thanedar for Detroit Seat
In his personal financial disclosure report filed in December, Thanedar listed owning the cryptocurrency bitcoin valued at $100,000 to $250,000 among his investment holdings.
“Crypto is a new type of investment income, so I won’t be surprised if we see more of it in campaigns,” said Stuart McPhail, director of campaign finance litigation at the nonpartisan Citizens for Responsibility and Ethics in Washington.
Grayscale Bitcoin Trust is known as spot bitcoin exchange traded funda type of ETF that tracks the price of bitcoin by holding a large amount of the cryptocurrency on behalf of shareholders (i.e. shareholders do not directly own the cryptocurrency).
Lawyers said Thanedar’s campaign would likely have to pay taxes of up to 21% on any investment income because money from investment sources would likely not be considered related to the campaign’s tax-exempt functions.
“Therefore, if the campaign has taxable profit, it would pay tax on the gross amount of interest or dividends. There may be deductions that are allowed, but there will generally be tax due on that,” said Heidi Abegg, attorney. in Washington, D.C., who represents nonprofit organizations in compliance matters and also practices campaign finance law. “This will be due after the end of the fiscal year.”
There is a set tax rate for candidate committees, Abegg said. The tax for a U.S. House candidate’s main campaign committee would be calculated by multiplying the taxable income by the corporate income tax rate, which is 21%. The campaign could deduct any costs related to the investment, she added.
“If you’re self-funding, you’re more likely to feel comfortable investing in these types of vehicles than if you’re pooling money from a lot of different people,” Abegg said. “But you don’t really see that very often.”
mburk@detroitnews.com