The crypto bill is falling apart in Congress

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Last week, when I was tracking Coinbase’s opposition to the Clarity Act, I kept hearing the same fear from worried DC insiders: The crypto industry was running out of time to pass a bipartisan market structure bill that would actually give them a favorable outcome. The midterm elections are imminent, and Congress will switch to campaign mode in the upcoming weeks, meaning policymaking and bipartisanship will take a backseat to reelection priorities. To put it in private sector parlance, there will be guaranteed personnel turnover, and their replacements may not be quite as friendly to the crypto industry.

But to put it in political terms, the Democrats are likely to gain a lot more power, and the Republicans are about to lose it. Historical statistics almost guarantee it: In 90 percent of the midterm elections over the past 80 years, the incumbent president’s party lost seats in the House. Every president since Bill Clinton has lost both the House and Senate in the first two years of their term. Midterms are, more or less, a referendum on the president, and the less popular a president is, the more seats his party ends up losing.

Given this trend, Coinbase has taken a huge gamble: that crypto’s allies would remain in Congress, with the Republicans nudged along by President Donald Trump, and that the Democrats who are hostile to crypto, like Rep. Maxine Waters (D-CA) or Sen. Elizabeth Warren (D-MA) wouldn’t seize the policy wheel. They had two allies speaking on their behalf, too: White House AI and crypto czar David Sacks, and the president’s son, Eric Trump, who told a crowd at the World Economic Forum in Davos, Switzerland, that the banking industry was responsible for Clarity stalling.

Then ICE agents killed an ICU nurse in broad daylight during an anti-ICE protest in Minneapolis on Saturday. And as the country erupted in fury, politics took over the US Capitol, and policy was kicked to the backburner.

In response to Alex Pretti’s death and ICE’s continued presence in Minneapolis, Senate Minority Leader Chuck Schumer (D-NY) announced that the Democrats would not vote for any budget that continued to fund ICE at the Department of Homeland Security, setting up the possibility of a partial government shutdown. Crucially, several moderate Senate Dems revoked their support as well, including Sen. Patty Murray (D-WA), the top Democrat negotiator for the current funding package. Although she’d initially been urging her colleagues to vote for the bill, Murray announced on Sunday that she was reversing course. “Federal agents cannot murder people in broad daylight and face zero consequences,” she wrote on X.

Partisanship had already started leaking into the Clarity debate, said Cody Carbone, the CEO of The Digital Chamber, a major digital asset and blockchain industry trade association in Washington. Most of the opposition to the last Clarity draft came from Democrats, as well as two Republicans who represented states with large banking industries. (One of them, Sen. Thom Tillis of North Carolina, is retiring this year due to his opposition to Trump.) But Carbone raised concerns that Pretti’s death would prompt each party to become more hardline, both in the Senate and the House (which would have to review the bill again if the Senate made substantial changes). More floor time would be dedicated to deeply partisan, existential battles, from government shutdowns to hearings. And crypto was in danger of being lost in the fold, to the detriment of both parties.

“Crypto holders are super intense about crypto. They’re single-issue voters, and they vote with their wallets,” he told me, noting that while they tended to hold Democrat-leaning views, they overwhelmingly voted Republican because they perceived the party to be friendlier to the industry. “If you look at some of the political dollars that the crypto industry gave last election, and some of the enthusiasm from crypto voters, it can swing elections.”

The crypto sausage-making resumes this week when the Senate Agriculture Committee, which regulates commodities, convenes on Thursday for its own markup of the Clarity Act. (The Banking Committee, which regulates securities, seems to be in a stalemate.) Below, Carbone and I chat about what crypto lobbyists are hearing in the smoke-filled backrooms, which Senators are being wooed by the banks, and a doomsday scenario (for the industry) in which the Democrats win either the House or the Senate before Clarity is passed. “I imagine there’ll be a lot of subpoenas and they’ll want to look into the Trump family’s dealings around crypto,” he predicted. “There’s not going to be any interest in passing crypto legislation that will help in terms of adoption.”

“I think we’ll be kicking ourselves if we get a Democratic Congress, and then we can’t get anything through”

This interview has been edited for clarity and length.

So let’s summarize what’s causing the bill to be stuck.

I think the biggest issue right now holding up the bill is whether stablecoin issuers are going to be able to continue to issue rewards to consumers. So right now, if you are on Coinbase and you’re holding USDC, you get 3.5 percent from your holdings in terms of rewards.

Is it like a cashback program, or an interest payout?

Essentially, it’s like an interest. That is what the bank lobby is very upset about, and that is who is pushing back against Clarity. They are concerned that if stablecoin issuers, or third parties that are holding stablecoins like exchanges, are passing along the interest to consumers, that will lead to a bank deposit flight — that your mom and dad, whomever, will stop going to their community or regional bank to hold their money, because at that bank, they’re only getting .001 percent interest yield. They may start holding their savings in stablecoins because they’re getting 3.5 percent or 4.5 percent, or just higher interest rates overall, through these rewards.

That’s way higher than a traditional bank interest rate.

Way higher. Right now, under the GENIUS Act, it is not prohibited to offer these rewards. It is prohibited to offer yields. So the banks are calling it a loophole. Now, there’s nothing in the bill that prohibits the banks from offering rewards or higher interest rates, but that is what’s holding up market structures. The banking industry is saying, The only way we can prohibit stablecoin issuers, or anyone holding stablecoin offering these rewards, is to have it addressed now in market structure legislation. So they have lobbied really, really hard to get a full prohibition on rewards in this bill. 


That’s Coinbase’s number one issue with this, and it’s the number one reason that this bill, or at least the markup at Senate banking, didn’t go forward two weeks ago. There wasn’t direct alignment, even between Republicans — but especially between Republicans, Democrats, and the members of the committee and the crypto industry — on what to do and how to solve this issue.

How much exactly does Coinbase stand to lose if this provision goes through?

It would be a huge detriment to their business. It’s not their whole business, but there’s a massive appetite — and I’m sure there’s a massive user base on Coinbase right now — for people to go in and to hold and buy stablecoins because of the rewards. I mean, I am someone who has moved their savings from a traditional bank to USDC because I get 3.5 percent back versus getting .001 percent. I think it’s a big use case for stablecoins overall, especially as we’re still in this nascent period where we just passed the first regulatory framework [with the GENIUS Act]. There’s still not mainstream adoption of stablecoins, but there could be very, very soon, not only from business to business, but business to consumer. 


One of the big concerns I was hearing about this bill, even before the shooting happened, was that there was only a limited amount of political runway to get this bill done before the election season started. Do you think that a lack of partisanship would impact the passage of this bill?

It has to be bipartisan. The only way this bill can pass the Senate floor is if they get 60 votes, so they will need at least six Democrats. There’s a group of 12 Democrats who have earnestly been working day by day with a majority of Senate Republicans to get this done. There were over a hundred Democrats in the House who supported it, so this should be a bipartisan issue.

The Democrat negotiators have gotten a lot of what they’ve asked for, at least in the Senate banking bill, so I’m hoping that they can come to the table and say, You know what?
We want to support this, and we’re gonna vote yes. Even though it is a completely partisan climate, this is one of the few issues that could be bipartisan, and it has been demonstrated to be bipartisan. Even this year in the Senate, with the GENIUS Act’s passage, and then the House with the Clarity and GENIUS acts’ passage.

But politics trumps policy, and the closer and closer that we get to November and election day, the harder it is to put policy first and to try to get this bill done. So I’m really targeting the end of this quarter, early in the second quarter, to get this bill done and to the president’s desk. But then it gets much, much harder.

What does crypto look like as an issue going into the midterm elections? Like, is it too closely tied with MAGA and Trump, or will it be less of a factor that drives voters’ decisions?

Well, it’s really interesting. When you talk to the average voter, it’s not the number one issue that comes out, especially in today’s climate. But we conducted a survey at the end of last year where we looked at the political leaning of crypto holders. They actually lean left, and they tend to be more Democratic-leaning or have historically supported Democrats. However, crypto holders are super intense about crypto. They’re single-issue voters, and they vote with their wallets. So even though they tend to lead politically left, they’ve been voting Republican because they perceive Republicans to be more supportive of crypto.

I’m hoping that will illustrate to both Republicans and Democrats that there is a voter base out here that they can get. It’s a small voter base, but if you look at some of the political dollars that the crypto industry gave last election, and some of the enthusiasm from crypto voters, it can swing elections. The crypto vote will really be dictated on: Are we going to get market structure legislation? Is that going to be an issue that’s still looming in November? If market structure passes in the next few months, there’s not as many hot-button crypto issues that need to be addressed. So it’s not a huge ballot issue, but we’re getting to the point where crypto issues are becoming more woven into the fabric of economic issues with the country.

Going back to Congress: What should one be on the lookout for during the Agriculture markup?

Number one is what [New Jersey Democratic Sen.] Cory Booker does. So [Minnesota Democratic Sen. Amy] Klobuchar, the ranking member, delegated the task of negotiating this bill with the Chairman [Arkansas Republican Sen. John Boozman] to Booker.

Klobuchar is probably busy right now.

She’s quite busy. So Booker has been working earnestly with the chairman. It has been the Senate Ag Committee’s stated intention from the start of this Congress: We want to have a bipartisan product. That’s really important to us. That manifested itself in a bipartisan discussion draft that came out a few months ago. However, the most recent text that came out last week was the first product that came out that was not bipartisan. Democrats said, Hey, we’re not signing onto this. However, we’re continuously working with Republicans to get to yes.

So, as of right now, as we sit here 72 hours before the markup, has that changed since the text was released last week? Has Cory Booker come on board? Can they broker an agreement? What we have heard from other Democrats on the committee is that they’re not going to do anything without Cory Booker’s blessing. If Cory Booker says he’s a yes on this, then I imagine a big portion of the Senate Democrats vote yes.
If Cory Booker says he’s a no, then I imagine it’s going to be a partisan vote, and the bill will pass out of committee with just Republican supporters.

Let’s game out a situation where either the House and/or Senate is taken by the Dems. Exactly how much will the partisan makeup of a chamber impact whether this bill comes through again?

Just based on the people in power on the Democratic side for the committees of jurisdiction, it’ll mean a lot. If you look at the House Financial Services Committee, [California Rep.] Maxine Waters, who would take back over as chairwoman, is not a fan of this technology. So that makes it difficult right out of the gate to move this through. Same thing in Senate Banking. It’s almost even worse for the crypto industry, because [Massachusetts Sen.] Elizabeth Warren is a ranking member and would become the chairwoman.

If either of those chambers flip, I don’t see how the Clarity Act would be possible, because those two committee chairs will not try to move these issues through. Their focus will be on enforcement. I imagine there’ll be a lot of subpoenas and they’ll want to look into the Trump family’s dealings around crypto. There’s not going to be any interest in passing crypto legislation that will help in terms of adoption. 


On the flip side of that, who does the banking industry have on their side? 


I would say most of the Democrats right now. And then there are a few Republicans who are very concerned about what the banking industry is saying because they represent a large population of community, regional or large banks. [Republican Sen.] Thom Tillis represents a huge banking capital in Charlotte, North Carolina. He’s been very concerned about what rewards will do for deposit flights. We’ve heard from [Alabama] Sen. Katie Britt and she’s been very concerned about what her community banks are saying about how stablecoins could outcompete them.

Again, my counter to all of them is that there is nothing in this bill that prohibits the banks from issuing their own stablecoins and offering rewards and competing with crypto exchanges. To me, this is all about competition and trying to keep a competitive moat. But there are Republicans who are very concerned and at the negotiating table. They are always very clear that they’re not anti-crypto and they’re not anti-stablecoins, but they want to make sure that the banks are protected. So hopefully we find a compromise soon. I just still think we’re in that limbo where no one knows what that compromise is yet. 


Has Coinbase indicated anything that would bring them back to the table yet? 


Nothing I’ve heard directly from Coinbase. They would know better than I. But I’m hoping, as this bill continues to improve, they are one of, if not the largest, names in crypto, and that they will find that a good bill is better than no bill. I understand everyone saying out there no bill is better than a bad bill. I don’t disagree, but we need to be at the negotiating table to improve this bill, because we want a bill, and I think we’ll be kicking ourselves if we get a Democratic Congress, and then we can’t get anything through, and then maybe it’s a Democratic administration. Who knows? We’d be reliving the Gary Gensler era of the Biden administration all over again, and we would be sitting here being like, Man, I really wish we’d gotten that bill done in 2026.