January was going to be a historic month for the crypto industry. The Senate will begin negotiations on the finer details of the Clarity Act, a major law that will ultimately establish the fundamental structure of how the crypto market can legally operate in the United States: which digital assets count as a commodity versus a commodity, what regulatory responsibilities companies must follow, what legal protections consumers can get. The House had passed their version months earlier. The White House was ready to sign it. Democrats and Republicans appeared to agree on the basic principles of the bill.
And crypto, which had spent decades navigating regulatory gray zones, will finally have a set of rules to work with — maybe not perfect rules, but tough rules. “[We] Don’t want to be in a place where with every change of administration, what you can and can’t do with the software, or what you can and can’t publish, changes,” said Connor Brown, head of strategy at the Bitcoin Policy Institute. The Verge.
Last Wednesday, just before midnight, everything fell apart.
Just hours before the Senate Banking Committee was scheduled to convene Thursday for markup — the period where a group of Republicans and Democrats will negotiate every single word, clause and amendment to over a hundred drafts to get it ready for a final Senate vote — Coinbase, the world’s largest crypto exchange, announced that after reviewing the final draft of the bill, they are withdrawing their support for the Clarity Act entirely.
“We’d rather have no bill than a bad bill,” CEO Brian Armstrong said on
Armstrong had several specific objections, but Coinbase seems willing to die on a hill: whether crypto owners would be able to earn interest or other rewards from holding the stablecoin, a token whose price was pegged to the value of the U.S. dollar, the way consumers can earn interest from money deposited in traditional bank accounts. (Coinbase did not return requests for comment.)
Banking Committee Chairman Tim Scott (R-SC) immediately canceled the markup, leaving only a “brief pause” for renegotiation. Lobbyists started calling around and analysts started analyzing the draft. But notably, crypto’s biggest players, from exchanges to investors, publicly announced they would support the Senate bill, and criticized Coinbase for derailing its passage.
Kraken CEO Arjun Sethi reaffirmed his support for the Clarity Act on Thursday, saying, “Reasonable people can disagree on specific provisions. That’s why this final step in the process matters.” “The right response to unnecessary issues is to resolve them, not throw away years of bipartisan progress and start from scratch.” His sentiment was shared by a16z managing partner Chris Dixon, Ripple CEO Brad Garlinghouse, and even David Sachs, the powerful White House special adviser on AI and crypto, who urged Coinbase to “resolve any remaining differences” before the end of the month.
While the rest of the industry is willing to deal with the problems outlined by Armstrong in exchange for a law, Coinbase – a publicly traded company that offers yield-bearing stablecoin accounts – stands to lose the most if the interest issue persists. But there is a real deadline for enacting any kind of meaningful crypto legislation, and it starts the moment members of Congress begin running for re-election.
Midterm elections are usually guaranteed to eliminate any incentive for bipartisan consensus, but especially so this cycle, where elected officials will face fractious constituents who may view Clarity’s support as a proxy for support for Trump. It doesn’t help that Senate Republicans are trying to kill a Democrat-written provision that would prevent Trump from profiting from crypto assets. The campaigns begin in March, and the Senate is not in session until next week, giving them less than a month to iron out any issues before switching to campaign mode.
That’s a very short amount of time for the Banking Committee to renegotiate the new language, mark up that bill, send it to the Senate Agriculture Committee (which is responsible for regulating commodities), and even before it comes to the Senate floor for a full vote. And “floor time” – when the Senate can convene all 100 members to vote individually on a bill – is a rare commodity before election season. (Much of it will probably be burned to avert another government shutdown.)
Postponing the bill to next year is also not a safe option. It is widely expected that Republicans will lose either the House or the Senate, giving Democrats the means to block CLARITY’s passage, for whatever reason. And while the current president may be a staunch ally to the crypto industry, there’s no telling who will come after him, much less how they’ll feel about crypto.
“Will we ever have as favorable a setup as we have now? It’s hard to imagine,” said Seth Hertlein, global head of policy at Ledger. “Could it happen? Certainly, probably, no one knows. But there’s certainly a sense that if we don’t do it now, either it’s not going to happen, or it will be on much less favorable terms.”
In the meantime, however, D.C. policymakers are frustrated that Coinbase has reopened a debate that was settled last year: The House had already spent years writing and negotiating a crypto market structure bill, which passed with an overwhelming bipartisan vote last August. In Coinbase’s defense, the Senate version now has to contend with demands from the finance industry, which initially ignored crypto market structure until late last year, as well as progressive Democrat senators on the committee. And, of course, the Senate insisted on writing its own version of the bill rather than working on the House version.
“The Senate is where House bills die,” Hertlein said. “It’s a typical Washington bubble joke.”
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