Pro-Crypto Democrats Withdraw Support for Stablecoin Bill Over AML Concerns

A group of pro-crypto Senate Democrats have withdrawn their support for a Republican-led stablecoin bill just before its anticipated passage. The decision was driven by concerns over the bill's anti-money laundering (AML) rules and national security provisions, which the Democrats deemed insufficient and potentially harmful.

The stablecoin bill, formally known as the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, had previously garnered strong bipartisan support and was set to advance through the Senate Banking Committee. However, the last-minute withdrawal of support from pro-crypto Democrats has cast a shadow of uncertainty over its future. These Democrats, who had initially backed the legislation, cited specific clauses in the bill that they believed could compromise national security and fail to adequately address AML regulations.

The shift in stance by these Democrats highlights the complex and often contentious nature of cryptocurrency regulation in the United States. Stablecoins, which are digital assets pegged to the value of a stable reserve asset like the U.S. dollar, have become a focal point in the ongoing debate over how to regulate the burgeoning crypto industry. The bill in question aimed to provide a framework for the issuance and regulation of stablecoins, ensuring they are backed by sufficient reserves and subject to appropriate oversight.

The withdrawal of support from pro-crypto Democrats underscores the delicate balance that lawmakers must strike between fostering innovation in the crypto space and ensuring that regulatory measures are robust enough to protect against financial crimes and national security threats. The move also signals a potential rift within the Democratic Party, as some members prioritize the need for stringent regulations over the potential benefits of stablecoin adoption.

The future of the stablecoin bill now hangs in the balance, with its passage through the Senate uncertain. The withdrawal of support from key pro-crypto Democrats has left the bill's proponents scrambling to find a way forward, potentially requiring significant amendments to address the concerns raised. The outcome of this legislative battle will have far-reaching implications for the crypto industry, shaping the regulatory landscape for stablecoins and other digital assets in the United States.

Among the signatories were Senators Ruben Gallego, Mark Warner, Lisa Blunt Rochester and Andy Kim — all of whom had previously backed the bill when it passed through the Senate Banking Committee in March. The statement was also signed by Senators Raphael Warnock, Catherine Cortez Masto, Ben Ray Luján, John Hickenlooper and Adam Schiff. Despite their objections, the Democratic senators emphasized their commitment to shaping responsible crypto regulation. They reportedly said they “are eager to continue working with our colleagues to address these issues.”

On April 27, Caitlin Long, founder and CEO of Custodia Bank, criticized the US Federal Reserve for quietly maintaining a key anti-crypto policy that favors big-bank-issued stablecoins, despite relaxing crypto partnership rules for banks. Long explained that while the Fed recently rescinded four prior crypto guidelines, a Jan. 27, 2023, statement was left intact in coordination with the Biden administration. The guidance, according to Long, blocks banks from engaging directly with crypto assets and prohibits them from issuing stablecoins on permissionless blockchains. However, Long noted that once a federal stablecoin bill becomes law, it could override the Fed’s stance. “Congress should hurry up,” she urged.