The assertive actions of Coinbase Global, Inc. (COIN.US), one of the world's largest cryptocurrency exchanges headquartered in the US, have triggered a significant rift within the crypto sector, leading to delays for a crucial regulatory bill. The White House has even issued a rare critique of the cryptocurrency industry, cautioning against taking its newfound political influence in Washington for granted. Following Coinbase CEO Brian Armstrong's role in delaying a comprehensive cryptocurrency legislative package in the US Senate for a week, White House crypto advisor Patrick Witt voiced his disagreement with Armstrong on the social platform X. Armstrong had previously warned that "no bill is better than a terribly bad bill." Witt posted, "You may not like every part of the CLARITY Act, but I can guarantee you'll like a future Democratic version even less." Because the Coinbase CEO withdrew support for the latest version of the cryptocurrency market structure bill last week, its advancement could be delayed by several more weeks, prompting some crypto industry executives to question whether its leaders are overplaying their political hand. The schism is widening between executives like Armstrong, who are holding out for the best possible crypto regulatory terms, and those prepared to compromise to secure much-needed regulatory clarity while the US political climate remains favorable.
Looming over the debate is this year's midterm elections, which could result in a less friendly US Congress, while the crypto industry is still actively recovering from the regulatory crackdowns of the Biden administration. The CLARITY Act—officially the American Digital Asset Market Clarity Act—carries substantial implications for the global cryptocurrency market. Its core objective is to establish a comprehensive and clear federal regulatory framework for digital assets, including defining which agencies (like the SEC or CFTC) oversee different types of crypto assets (such as digital commodities and securities), regulating exchange and intermediary registration, strengthening consumer protection, and clarifying the division of responsibilities between the SEC and CFTC. If successfully passed, it would significantly reduce the compliance uncertainty currently facing the US crypto market, thereby potentially encouraging institutional investment and fostering more stable market growth. The delays and controversies surrounding the CLARITY Act's progress have already had an immediate impact on market sentiment. Last week's withdrawal of support by the Coinbase CEO and the subsequent full postponement of the markup stage in a key Senate committee increased uncertainty about the regulatory outlook, which in turn put downward pressure on the short-term performance of crypto assets like Bitcoin and Ethereum, as well as global cryptocurrency ETFs. Some crypto participants even fear that Coinbase's withdrawal of support, which led the Senate Banking Committee to delay its markup work, combined with the exchange's deepening standoff with Wall Street banking giants, could push Wall Street—facing its own existential moment—to use the broader financial ecosystem as a coercive tool. This could pressure the Senate into making significant concessions, further clouding the prospects for a crypto regulatory framework and potentially unleashing a "regulatory black swan" event that causes a sharp market downturn.
The US's key cryptocurrency regulatory initiative, centered on the CLARITY Act, is currently mired in significant complications, primarily stemming from Coinbase CEO Brian Armstrong's public withdrawal of support for the bill. This led to a delay in a critical procedural step in the Senate: the markup and deliberation process. The CLARITY Act had initially passed the House of Representatives, aiming to create a unified federal regulatory framework for the digital asset market and clarify whether assets fall under the jurisdiction of the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC), thereby ending a long period of policy ambiguity and promoting innovation and investor protection. However, just before the Senate Banking Committee was scheduled to deliberate on the draft bill in mid-January, Armstrong publicly opposed provisions restricting businesses like stablecoin rewards, arguing they could stifle innovation and weaken market competitiveness. This stance caused division within the industry and prompted the committee to indefinitely postpone its deliberations. Furthermore, the Senate Agriculture Committee, another key committee that must review and produce its own version, is still advancing its market structure bill text. It is understood that the Agriculture Committee may hold a hearing on the bill on January 27 local time, potentially followed by a vote. For the CLARITY Act to become law, it must first pass separate versions in both the Senate Banking and Agriculture Committees, then be reconciled into a merged version, returned to the full Senate for a vote, and finally aligned with the House version before being sent to the President for signature. This legislative process has become increasingly complex and uncertain against the backdrop of an election year and intensified regulatory debate.
Commenting on Armstrong, George Washington University Law School professor emeritus Arthur Wilmarth said, "I'm struck by his guts and his hubris." "But if I were in his shoes, I'd have to ask myself, do I really think I'm going to be in a better position six months from now, or a year from now?" Following the delay of the markup work, Bloomberg Intelligence senior analyst Nathan Dean lowered the probability of the bill passing in the first half of the year from 70% to 60%. Dean wrote, "If we don't see any positive movement from the committees by the end of February, our chances of success could decline further." Armstrong appeared to strike a slightly more conciliatory tone on Tuesday, telling media in an interview that although the draft contained "too many concessions to traditional finance," he still believed a path to passing the legislation was viable. Coinbase did not respond to multiple requests for official comment. After helping to stall the Senate Banking Committee's bill markup, Armstrong demonstrated the political clout of the cryptocurrency industry, which has gained significant digital asset wealth under the strong support of President Trump. The cryptocurrency industry has been the largest donor in the 2023-2024 US presidential election cycle, with industry participants donating over $133 million to political candidates perceived as supportive of their agenda, according to data from OpenSecrets. Industry participants have also made substantial donations to Trump's presidential campaign, as well as his inauguration and related events. The bet on Trump has so far paid off handsomely, with a series of executive orders supporting the healthy development of the crypto industry and milestone stablecoin legislation formally passed in July 2025.
However, the string of victories for the cryptocurrency industry has also triggered collective alarm among Wall Street's large commercial banks. These major banks view the introduction of stablecoin reward mechanisms as posing an almost existential risk of massive deposit outflows and have decided to take action. Their top priority is to ensure a ban on third parties (like cryptocurrency exchanges) offering yields or additional rewards on stablecoins. Stablecoins—a form of digital currency backed by traditional assets like the US dollar—have seen rapid adoption since late 2024, especially in the US market. Some Wall Street analysts even predict their scale could balloon to $2 trillion. Proponents see them as a blueprint for a 21st-century global payment system, while other analysts warn they could open new fissures in the financial system. Designed to maintain a stable value, typically pegged 1:1 to the US dollar, the use of stablecoins has surged in recent years, particularly as crypto traders move funds between Bitcoin and other tokens like Ethereum, and as their penetration in cross-border financial services accelerates. Stablecoins are a specific type of cryptocurrency that maintains a stable value ratio by being pegged to core reserve assets like the US dollar, euro, or gold. As key legislation for a stablecoin regulatory framework accelerates toward completion in the US Congress, these price-stable cryptocurrencies are entering the mainstream of global financial assets. Essentially "dollars on the blockchain," stablecoins use highly liquid dollar assets (cash, short-term Treasuries) as a 1:1 collateral mechanism. They combine the "dollar" with "blockchain," offering a new payment vehicle that is both stable and efficient, and revealing the commercial potential of "digital dollarization" to capital markets. The restrictions on stablecoin rewards stipulated in the initial version of the bill became the largest point of contention between Wall Street banking giants and the crypto industry, with neither side willing to back down. Banks argue that allowing exchanges like Coinbase to effectively provide yields on customers' stablecoin holdings could siphon off low-yield bank deposits, potentially destabilizing the global financial system. Crypto executives counter that they are simply acting in the interest of crypto consumers and want to pass on the yield generated from the reserves backing stablecoins to their clients. Circle Internet Financial CEO Jeremy Allaire, speaking at a World Economic Forum discussion in Davos, said, "I think the banks' argument about deposit flight risk is completely absurd." He pointed out that stablecoin rewards are similar to those offered by credit card issuers, stating, "Our objectives are almost identical: helping to increase customer stickiness, helping with customer acquisition, etc." He added that similar warnings emerged with the advent of money market funds, but those fears proved entirely unfounded. Reportedly, some exclusive Coinbase customers can earn approximately 3.5% rewards on their holdings of Circle's USDC stablecoin on the platform. As shown in the chart above, Tether's stablecoin holds a larger market share than Circle's. Armstrong has attempted to frame this as a "David vs. Goliath" struggle, where he and other crypto companies are bravely standing up for crypto consumers. He stated in Davos, "The bank lobby and the bank associations are trying to ban their competitors. I have zero tolerance for that. I don't think it's in the American spirit, and it's harmful to consumers." Other parts of the market structure bill are also seen as unfavorable to the crypto industry, including comprehensive monitoring of decentralized finance (DeFi) platforms, restrictions on tokenized stocks, and potentially increasing the SEC's regulatory power in certain areas—reminding Armstrong of the Biden-era commission under former Chairman Gary Gensler, which was viewed as a "nemesis" by the crypto industry.
For some executives, fighting for favorable terms deeply embedded within the US financial system is a political risk worth taking. The goal is to secure a sufficiently favorable bill now, making it difficult for any future Democratic-led administration to reverse the industry's legislative gains. Legislation that embeds crypto into the US financial system with preferential, reward-inclusive terms could endure long into a potential Trump administration, a risk deemed worthwhile under a crypto-friendly president. "The crypto industry is playing a 'long game,' recognizing that legislation debated now could restrict their activities under less friendly future governments. Therefore, they aim to deeply embed their interests into the US financial system through current legislation, securing more stable regulatory advantages that are harder for future administrations to overturn in the long run," said Eswar Prasad, a senior professor of trade policy at Cornell University who has been following the industry. Not all crypto companies share the same view. Firms like Kraken and Galaxy Digital Inc., founded by Mike Novogratz, lean towards passing the digital market structure bill as soon as possible and had hoped the markup would proceed smoothly, according to people familiar with the matter. Kraken CEO Arjun Sethi wrote on platform X, "Walking away now doesn't mean maintaining the status quo in practice. But it locks in uncertainty, leaving US companies to operate in the gray while other countries move ahead." Groups supporting the decentralized finance (DeFi) industry were also prepared to support the Senate's markup and expressed disappointment at the delay. "We were ready for markup," said Amanda Tuminelli, Executive Director and Chief Legal Officer of the DeFi Education Fund. "We have been working closely with other key industry members, influential figures, and the Senate Banking Committee, which has put tremendous effort into getting this bill to a promising place."
Comments