Senate Committee Delays Crypto Market-Structure Markup Amid Coinbase Withdrawal

The Senate Banking Committee has postponed the markup of the Digital Asset Market Clarity Act following Coinbase Global Inc.'s withdrawal of support for the bill. Senate Banking Committee Chairman Tim Scott announced the delay as negotiations continue to address concerns raised by the industry. The bill, which was scheduled for markup on Thursday, aims to provide a regulatory framework for digital assets and define their oversight between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

Coinbase CEO Brian Armstrong cited several issues with the current draft, including a de facto ban on tokenized equities and restrictions on stablecoin rewards. He stated the version of the bill would be materially worse than the current regulatory status and that the company would prefer no bill over a poorly designed one. The bill's provisions on stablecoin rewards, which would eliminate incentives for holding stablecoins, are among the most contentious aspects of the legislation.

The Digital Asset Market Clarity Act is designed to bring clarity to the regulatory landscape for cryptocurrencies, a sector that has long been seeking definitive guidelines. The legislation would establish enforceable rules distinguishing which digital assets fall under securities law and which qualify as commodities. It also includes provisions to address illicit finance and enhance consumer protections within the digital asset market. According to fact sheets, the bill aims to create a clear regulatory framework for digital assets.

Why Did This Happen?

The Senate Banking Committee's decision to delay the markup reflects the ongoing challenges in aligning industry interests with legislative goals. The withdrawal of support from Coinbase, a key industry player, has added uncertainty to the bill's prospects. Coinbase had been a central stakeholder in the bill's negotiations and had contributed financially to political campaigns supporting crypto-friendly candidates in the 2024 election.

The bill's provisions on stablecoin rewards and tokenized equities have sparked significant debate. Stablecoin rewards, which Coinbase currently offers to users for holding stablecoins like USD Coin, have emerged as a flashpoint in negotiations. Banking groups argue that these rewards could draw deposits away from traditional banks, while crypto firms counter that banning them would stifle innovation and push users toward offshore platforms. According to Coinbase CEO Brian Armstrong, the current version of the bill would be materially worse than the current regulatory status.

What Are Analysts Watching Next?

Analysts are closely watching whether the delayed markup will lead to a revised and more industry-friendly version of the bill. Galaxy Research's Alex Thorn emphasized that a bipartisan market structure bill that clearly defines token classifications and delineates regulatory jurisdictions could be a major catalyst for crypto adoption. However, the delay could potentially derail the legislation, particularly ahead of the midterm elections.

The lengthy rulemaking process associated with such legislation is another point of concern. According to Paradigm's vice president of regulatory affairs, Justin Slaughter, the implementation of the bill could take years due to the complexity of the 45 rulemakings required. He compared the situation to the prolonged implementation of the Dodd-Frank Act, which took nearly a decade to fully enforce.

What Are the Market Implications?

The outcome of the markup and the eventual passage of the bill will have significant implications for the crypto market. The legislation is expected to affect how digital assets are classified and regulated, with potential consequences for exchanges, custodians, and stablecoin issuers. The bill also includes provisions that protect software developers who publish or maintain code without controlling customer funds, while focusing regulatory obligations on centralized intermediaries. According to bill fact sheets, the legislation aims to create a clear regulatory framework for digital assets.

The delay in the markup has already sparked concerns among market participants. Some investors are worried that the lack of regulatory clarity could push activity offshore and undermine the legitimacy of the U.S. crypto market. The industry has been pushing for a clear regulatory framework to protect itself against potential anti-crypto policies under future administrations. As Bloomberg reported, the Senate Banking Committee's decision to delay the markup has added uncertainty to the bill's prospects.

The Senate Banking Committee's decision to delay the markup highlights the ongoing challenges in achieving a consensus on crypto regulation. While lawmakers continue to negotiate, the outcome remains uncertain. The final version of the bill will need to balance the interests of the crypto industry with regulatory oversight and consumer protection concerns. According to the Senate Banking Committee, the legislation aims to create a clear regulatory framework for digital assets.