January was going to be a landmark month for the crypto industry. The Senate would start negotiating the finer details of the CLARITY Act, a major law that would finally enshrine the fundamental structure of how the crypto market could legally operate in the United States: what digital assets counted as a security versus a commodity, what regulatory responsibilities companies had to abide by, what legal protections consumers could have. The House had already passed their version months ago. The White House was ready to sign it. Democrats and Republicans seemed to agree on the bill’s fundamentals.
And crypto, which had spent decades navigating a regulatory gray zone, would finally have a set of rules to work off of — maybe not perfect rules, but hard rules. “[We] don’t want to be in a place where, with the change of every administration, what you can and can’t do with software, or what you can and can’t publish, changes,” Connor Brown, the Head of Strategy for the Bitcoin Policy Institute, told The Verge.
Last Wednesday, just before midnight, everything fell apart.
Hours before the Senate Banking Committee would have convened for markup on Thursday — the period where a group of Republicans and Democrats would negotiate over every single word, clause, and amendment in the hundred-plus draft, to prepare it for a final Senate vote — Coinbase, the world’s biggest crypto exchange, announced that having reviewed the final draft of the bill, they were withdrawing their support for the CLARITY Act altogether.
“We’d rather have no bill than a bad bill,” CEO Brian Armstrong said on X, and later pinned the blame on a third party: the big banks, whose lobbyists had swooped in at the last minute to curb the threat of customers storing their money in crypto wallets instead of savings accounts.
Armstrong had several specific objections, but one hill Coinbase seems prepared to die on: whether crypto owners would be able to earn interest or other rewards off of holding stablecoins, a token whose price was pegged to the value of the US dollar, in the way that consumers could earn interest from money deposited in traditional bank accounts. (Coinbase did not return a request for comment.)
Banking committee chairman Tim Scott (R-SC) immediately cancelled the markup, just a “brief pause” to renegotiate. Lobbyists began calling around and analysts began dissecting the draft. But notably, the vast majority of crypto’s biggest players, from exchanges to investors, publicly announced that they would support the Senate bill, and implicitly bashed Coinbase for derailing its passage.
“Reasonable people can disagree on specific provisions. That is precisely why the final stage of this process matters,” Kraken CEO Arjun Sethi said on Thursday, reaffirming his support of the CLARITY Act. “The right response to outstanding issues is to resolve them not to abandon years of bipartisan progress and start over from scratch.” His sentiment was shared by a16z managing partner Chris Dixon, Ripple CEO Brad Garlinghouse, and even David Sacks, the powerful White House special advisor 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 Armstrong pointed out in exchange for having a law, Coinbase — a publicly-traded company that offers yield-bearing stablecoin accounts — would suffer the most if the interest issue remains intact. But there is a real deadline to lock in any sort of meaningful crypto legislation, and it starts the moment that members of Congress begin running for re-election.
Midterm elections are generally guaranteed to kill any incentive for bipartisan consensus, but especially so in this cycle, where elected officials will have to face furious constituents who might see support of CLARITY as a proxy for supporting Trump. It doesn’t help that the Senate Republicans are trying to box out a Democrat-written provision that would prevent Trump from profiting off of crypto assets. Campaigns start in March, and the Senate is not in session next week, giving them less than a month to hammer out any issues before switching to campaign mode.
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