Could Colorado be ready to accept bitcoin as a way of making donations to candidates?
Secretary of State Wayne Williams is proposing rules that could start that process. But the better question, according to one lawmaker, is whether candidates should accept bitcoin, or other forms of cryptocurrency, as campaign contributions.
Williams’ proposed rules, issued this week, would allow a campaign committee to accept contributions in cryptocurrency up to the acceptable limit for a cash or coin campaign contribution. For legislative candidates, that’s $400 per individual or business per election cycle; for statewide offices, such as governor, secretary of state, attorney general and treasurer, that’s $1,150.
The draft rule also says the amount of the contribution is the value of the cryptocurrency at the time of the contribution. That’s an important distinction, says Democratic state Rep. Jovan Melton of Aurora, who was one of several lawmakers who tried during the recently concluded session to start Colorado down the regulatory process for dealing with cryptocurrency.
Bitcoin is the best-known unit in the world cryptocurrency market, a market that’s more volatile than the stock exchange. Cryptocurrency — and Melton says there are between 50 and 80 different sources — was started in the early 2000s but took off in 2009 with bitcoin, which was developed by an anonymous computer programmer whose true identity has never been revealed. The currency bypasses traditional banks, instead relying on a computer algorithm, a sort of electronic transaction that can be bought and sold.
The volatility of cryptocurrency gives Melton pause when considering it as a campaign donation. For example: on Jan. 1, 2018, CoinDesk, which tracks cryptocurrency values, said one bitcoin was priced at more than $13,400. On May 18, the value was $8,200, and that’s a drop of more than $700 in the past week alone.
One of the rules around transactions involving bitcoin and other cryptocurrency is in their permanence: once a transaction has been made, it can’t be canceled.
How that would play out in Colorado campaign finance doesn’t appear to be addressed in the proposed rules. For example, how would a campaign refund a donation that exceeds the contribution limits, especially since sometimes it takes days or weeks to catch those excess donations? Given the volatility of cryptocurrency, the value of that donation is likely to change within a matter of a few hours.
At the federal level, candidates have been allowed to accept bitcoin as donations since 2014, but with a few guardrails. One rule requires the campaign to convert the donation to cash, although that’s not required immediately and prohibits using the electronic currency to pay for goods or services. Another rule allows the donation to sit in a kind of account, referred to in the Federal Election Commission rule as a bitcoin wallet, for as long as the committee wants to hold onto it.
The FEC treats a bitcoin donation as an in-kind contribution, similar to a donation of stock or securities. The value is what it is at the time of liquidation, rather than at the time the bitcoin (or a fraction of a bitcoin) is donated.
For reporting purposes, both at the federal level and in the Secretary of State’s proposed rules, the value of the donation is whatever the value of the bitcoin is on the day of the donation. The proposed rule states that any additional value or loss must be reported in the campaign finance reports when the bitcoin is finally liquidated. Like the federal rules, the proposed rule doesn’t require the bitcoin be converted to cash at the time of the contribution.
Another concern raised about cryptocurrency is in its anonymity. Banks verify the identity of those who make transactions. Bitcoin does not, according to CoinDesk. That can be a problem for Colorado candidates who must verify the source and employment of those who make donations. The proposed rules don’t appear to address that issue, either.
Deputy Secretary of State Suzanne Staiert acknowledged that accepting bitcoin donations, which campaigns can do now, may create a bit of a bookkeeping headache for campaigns. She told Colorado Politics it’s still up to the donor to identify him or herself for purposes of campaign contributions, which is how the system currently operates. The proposed rules are intended to start the process for regulating those donations, she explained.
While bitcoin donations have been allowed at the federal level, state candidates have been a little more leery. Democratic U.S. Rep. Jared Polis of Boulder started accepting bitcoin contributions to his congressional election campaign almost immediately after those donations were approved by the FEC in 2014, and quickly received more than $1,000.
But as far as his gubernatorial campaign is concerned: nada. There’s no option for making a bitcoin donation on his campaign website.
Republican State Sen. Owen Hill of Colorado Springs, who is challenging U.S. Rep. Doug Lamborn in the June 26 primary, announced back in January he would accept bitcoin contributions. But his website doesn’t show any way to do that, and his FEC filings so far don’t show that he’s taken in any bitcoin donations.
And other states have also been cautious about getting into bitcoin donations. So far, according to the Wisconsin Journal-Sentinel, only Montana and Washington, D.C., allow those donations to state candidates. A gubernatorial candidate in New Hampshire announced in 2014 he would accept Bitcoin donations. But it’s never been allowed under state campaign finance rules, according to a spokesperson for the New Hampshire Secretary of State.
Melton, the Democratic state representative, says he is a big fan of bitcoin but believes the proposed rules are premature. He told Colorado Politics he intends to work with the state divisions of banking and securities throughout the summer to come up with regulatory guidelines for the use of bitcoin and other such cryptocurrencies in campaigns.
Williams’ office accepted comments on the proposed rules through Wednesday, May 23. The only one received was from Polis, who wrote he was “pleased to see Colorado Secretary of State’s proposed campaign finance rule 10.7 on digital currencies. The rule rightfully embraces technological innovation and recognizes the growing popularity of digital currencies as currency and stored value. The rule treats cryptocurrency contributions exactly as they should be treated and I am proud to support it.”
Melton looks forward to the day when bitcoin can be accepted as donations but believes that day has not yet come. “What if I’m given $400 [in Bitcoin] today, and it’s valued at $500 tomorrow? I personally wouldn’t accept it,” Melton said.