Coinbase Withdraws Support for Senate CLARITY Act
▼ Summary
– The CLARITY Act, a major bipartisan crypto market structure bill poised for Senate negotiation, was unexpectedly derailed when Coinbase withdrew its support just before a critical committee meeting.
– Coinbase’s CEO blamed last-minute lobbying by big banks and objected to provisions preventing users from earning interest on stablecoins, stating they preferred no bill to a bad one.
– Most other major crypto companies publicly supported the bill and criticized Coinbase for jeopardizing years of bipartisan progress as time for legislation is running out before election campaigns begin.
– The legislative process faces severe time constraints due to the upcoming election season, which will halt bipartisan efforts, and the complex steps needed to pass the Senate before members shift to campaign mode.
– Failure to pass the bill now risks never achieving favorable regulations, as the political landscape may change after elections, with control of Congress potentially shifting and future administrations being less supportive.
The cryptocurrency industry’s long-awaited push for clear federal regulation has hit a major and unexpected roadblock. Just hours before a critical Senate committee meeting, Coinbase, the largest global crypto exchange, withdrew its support for the CLARITY Act, a landmark bill designed to establish the legal framework for digital assets in the United States. This sudden move by a key industry player has thrown the legislative process into disarray, jeopardizing years of bipartisan effort and leaving the future of crypto regulation uncertain as a tight political deadline looms.
For an industry accustomed to operating in a regulatory gray area, the CLARITY Act represented a potential turning point. It aimed to define which digital assets are securities or commodities, outline company responsibilities, and establish consumer protections. With the House of Representatives having already passed its version and the White House signaling support, the path forward seemed clear. The goal was to create stable rules, preventing policy from shifting unpredictably with each new presidential administration.
That momentum collapsed last Wednesday. Coinbase CEO Brian Armstrong announced the company’s reversal after reviewing the Senate’s final draft, stating, “We’d rather have no bill than a bad bill.” He attributed the problematic changes to last-minute lobbying by major banks, which he claimed sought to limit competition from crypto wallets. A central point of contention for Coinbase involves whether consumers can earn interest on stablecoins, digital tokens pegged to the U.S. dollar, in a manner similar to traditional bank savings accounts. As a publicly-traded company offering such yield-bearing accounts, Coinbase stands to lose significantly if the bill restricts this practice.
In response to Coinbase’s withdrawal, Senate Banking Committee Chairman Tim Scott (R-SC) canceled the scheduled markup session, calling it a “brief pause” for renegotiation. However, this pause comes at a precarious time. The vast majority of other major crypto firms, including exchanges like Kraken and investors like Andreessen Horowitz (a16z), publicly reaffirmed their support for the bill and criticized Coinbase for derailing the process.
Kraken CEO Arjun Sethi emphasized that the final negotiation stage is meant to resolve disagreements, not abandon years of progress. This sentiment was echoed by influential figures across the sector, who urged Coinbase to work through its issues rather than torpedo the entire legislation. Their willingness to compromise underscores a critical reality: the political window for passing such a complex bill is closing rapidly.
The midterm election cycle poses a severe threat to any further bipartisan cooperation. Campaigning begins in March, and the Senate is not in session next week, leaving lawmakers less than a month to resolve disputes before shifting fully into campaign mode. Once elections begin, the incentive for consensus evaporates, especially in a climate where supporting crypto legislation could be misconstrued as supporting former President Trump. Furthermore, Senate floor time for a full vote is an increasingly scarce resource, with most attention likely diverted to preventing a government shutdown.
Delaying the bill until next year is not a safe alternative. Political analysts widely predict Republicans will lose control of at least one chamber of Congress, which could give Democrats the power to block the CLARITY Act for any reason. While the current administration has been a crypto ally, future political leadership is unpredictable. Industry advocates warn that the current alignment of supportive lawmakers and White House backing may be a unique, fleeting opportunity.
Policymakers in Washington are reportedly frustrated, viewing Coinbase as reopening debates that were settled during the House’s lengthy, bipartisan drafting process. The Senate’s insistence on crafting its own version, rather than building on the House bill, introduced new complications, including demands from the traditional finance industry and progressive Democratic senators. As one policy expert wryly noted, “The Senate is where House bills go to die,” highlighting the daunting challenge now facing the legislation.
The industry now faces a stark choice: secure an imperfect but functional regulatory framework in the coming weeks or risk returning to a state of prolonged uncertainty, potentially waiting years for another chance under less favorable political conditions.
(Source: The Verge)
