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Washington ― Michigan U.S. Rep. Shri Thanedar used his congressional campaign committee to make a big bet on cryptocurrency this winter ― and so far, it has promise to pay big dividends.
The Detroit Democrat, a millionaire businessman who has largely self-funded his campaigns, took $3.7 million in cash from his campaign this year and used the 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 profit and interest income, which he listed on his campaign finance report for last quarter — roughly a 35% return on the Thanedar campaign committee’s investment. The campaign made five buys of GBTC from Jan. 3 through the end of March, a period during which the fund’s value grew a whopping 82%.
Investing campaign money is generally legal under federal campaign election regulations, which allow political committees to transfer funds for investment purposes to other accounts. The invested funds just must be returned or transferred to the campaign account before they may be used to make campaign expenditures under Federal Election Commission rules.
Thanedar said he expects to cash out when he needs the money for his Democratic primary campaign, starting in June. In the meantime, Thanedar said, one of the benefits of the crypto investment is he can skip long hours of dialing for dollars from campaign donors.
“There is a lot of good work I can do if I don’t have to do those calls,” Thanedar told The Detroit News.
Thanedar said he got the idea after learning that a few other candidates invest, including the Senate campaign of U.S. Rep. Adam Smith, D-California.
While investing campaign funds is allowed, it’s relatively rare for candidates to do, in part because of the financial risk and costs involved, campaign finance experts said.
“If you’re dealing with a kind of investment vehicle that would be available to anyone from the public, you generally can do it,” said Brad Smith, a Trenton native and former chairman of the Federal Election Commission. “It’s not common, in part because you can lose all your money. But it can be done.”
Candidates don’t invest more often because they’re eager to spend cash as soon as it comes in the door on campaigning 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 get into hiring investment managers,” Smith said.
Also, many candidates likely don’t want to gamble away their donors’ contributions, especially with a volatile cryptocurrency like bitcoin, experts said.
The calculus might be different for self-funding candidates, however. Thanedar has loaned his campaign over $3.3 million since December, so much of what was invested came from his own pocket. He closed the quarter reporting over $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 backs Hollier over Rep. Thanedar for Detroit seat
In his personal financial disclosure report filed in December, Thanedar listed owning bitcoin cryptocurrency 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 what’s known as a spot bitcoin exchange-traded fund, a type of ETF that tracks the price of bitcoin by holding a large amount of the cryptocurrency on behalf of shareholders (that is, the shareholders don’t directly hold the cryptocurrency).
Lawyers said the Thanedar campaign will likely have to pay taxes of up to 21% on any investment income because money from investment sources likely wouldn’t be considered related to the campaign’s tax-exempt functions.
“So if the campaign has taxable income, it would pay tax on the gross amount of the interest or dividends. There can be deductions that are allowed, but generally, there’s going to be tax owed on that,” said Heidi Abegg, an attorney in Washington, D.C., who represents nonprofits in compliance matters and also practices campaign finance law. “That is due after the close of their tax year.”
There’s a set tax rate for candidate committees, Abegg said. Tax for the principal campaign committee of a U.S. House candidate 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 be comfortable investing in those types of vehicles than if you’re pooling money from a lot of different people,” Abegg said. “But you really don’t see this very often.”
mburke@detroitnews.com
Read More: Michigan congressman reaps campaign windfall on cryptocurrency investment
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