Crypto Bill Faces Collapse in Congress
▼ Summary
– The crypto industry faces a narrowing window to pass favorable bipartisan legislation before midterm elections shift Congress into campaign mode, likely reducing bipartisan cooperation.
– A key obstacle to the Clarity Act is a dispute over whether stablecoin issuers can offer high-interest-like rewards, which banks oppose fearing deposit flight, and this issue stalled recent committee progress.
– The political climate is becoming more partisan, exacerbated by events like a protest-related death, which risks sidelining crypto legislation as lawmakers focus on more contentious issues.
– Crypto holders, while often leaning left politically, tend to vote as single-issue voters favoring Republicans, making them a potential swing bloc that could influence elections.
– If Democrats gain control of key congressional committees after the midterms, figures hostile to crypto like Maxine Waters or Elizabeth Warren would likely block the Clarity Act and focus on enforcement instead.
The window for passing a major cryptocurrency market structure bill is rapidly closing in Congress, with partisan politics and a looming election cycle threatening to derail the legislative effort entirely. Industry advocates warn that failure to enact the Clarity Act before the midterms could leave the sector in regulatory limbo for years, especially if Democrats gain control of either chamber. The immediate political landscape has become increasingly volatile, shifting focus away from policy debates and toward more contentious national issues.
A significant point of contention stalling the legislation revolves around stablecoin rewards programs. Traditional banks are lobbying aggressively to prohibit crypto platforms from offering interest-like yields on stablecoin holdings, arguing it could trigger a massive flight of deposits from the banking system. For companies like Coinbase, which offers such rewards, this provision represents an existential threat to a key part of their business model and user appeal. The disagreement has created a rare alignment of opposition from both some Democratic lawmakers concerned about financial stability and Republicans from states with large banking interests.
Compounding the policy dispute is the harsh reality of the congressional calendar. As the November elections approach, lawmakers are shifting into campaign mode, making bipartisan cooperation on complex issues far more difficult. Historical trends suggest the president’s party typically loses seats during midterm elections, adding another layer of uncertainty. Crypto lobbyists are now racing against the clock, hoping to broker a compromise before campaigning takes precedence entirely.
The political calculus for cryptocurrency is uniquely complex. Surveys indicate that while many crypto holders lean left politically, they often vote based on this single issue, frequently favoring Republicans whom they perceive as more industry-friendly. This dynamic creates a small but potentially influential voting bloc that both parties are keenly aware of. The industry’s ability to mobilize voters and contribute campaign funds means its legislative priorities could sway tight elections, giving it unexpected leverage in the debate.
This week, attention turns to the Senate Agriculture Committee, which is scheduled to mark up its version of the bill. The outcome hinges heavily on whether key Democratic negotiators, like Senator Cory Booker, can reach an agreement with Republican colleagues. If the committee process breaks down along partisan lines, it would signal severe trouble for the bill’s prospects in the full Senate, where it would need at least 60 votes to pass.
Looking ahead, the consequences of failure are stark. Should Democrats regain control of the House or Senate, leadership of critical committees would likely fall to lawmakers like Representative Maxine Waters and Senator Elizabeth Warren, who have been openly skeptical of the industry. Their focus would almost certainly shift from creating new regulatory frameworks to aggressive enforcement and investigations, potentially including probes into political figures’ crypto dealings. The path forward for favorable legislation would effectively vanish.
The banking industry remains a powerful opposing force, finding allies among both Democrats and Republicans who represent financial hubs. Their central argument, that stablecoin rewards could destabilize traditional banks, resonates in districts where banking is a major employer. Pro-crypto advocates counter that nothing in the proposed legislation prevents banks from innovating and competing directly by offering their own digital asset products, framing the conflict as one about maintaining a competitive advantage rather than consumer protection.
With time running out, the pressure is mounting on all sides to find a middle ground. Industry leaders express a growing fear that missing this opportunity could mean reliving a period of regulatory uncertainty and hostility, reminiscent of the current Securities and Exchange Commission approach. The coming weeks will determine whether Congress can navigate the partisan divide and complex financial arguments to provide clarity for a rapidly evolving digital asset market, or if the effort will collapse, leaving the industry’s future to the whims of the next Congress and electoral outcomes.
(Source: The Verge)
