Senate Democrats Withdraw Support for Stablecoin Bill Over AML Concerns

Two significant crypto policy efforts in the United States encountered obstacles last week, highlighting a growing divide in how digital assets should be integrated into government operations. In Arizona, Governor Katie Hobbs vetoed a bill that would have allowed the state to hold Bitcoin in its reserves, citing financial risks. Meanwhile, in Washington, a group of Senate Democrats who had previously supported a federal stablecoin framework withdrew their backing, citing insufficient safeguards in the proposed bill.

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The Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, introduced by Republican Senator Bill hagerty, is poised for floor consideration in the Senate. If passed, it would be the first comprehensive US law focused on stablecoin oversight, an area viewed as crucial for safeguarding financial stability and boosting investor confidence in crypto markets. However, nine Senate Democrats, including Senators Ruben Gallego, Mark Warner, Lisa Blunt Rochester, and Andy Kim, have expressed concerns about the bill’s treatment of Anti-Money Laundering (AML) provisions, national security implications, oversight of foreign stablecoin issuers, and accountability for noncompliant actors. Their opposition threatens to derail the bipartisan effort to bring clarity to the US digital asset landscape.

The dissenting Democrats emphasized that they would oppose a procedural vote to move the bill forward unless it undergoes further revisions. Their primary concerns revolve around the bill’s treatment of Anti-Money Laundering (AML) provisions, national security implications, oversight of foreign stablecoin issuers, and accountability for noncompliant actors. The legislative gridlock comes as tensions continue to mount between the crypto sector and US banking regulators. Caitlin Long, CEO of Custodia Bank, criticized the Federal Reserve for maintaining a policy that restricts banks from issuing stablecoins on public blockchains, despite the Fed’s recent rollback of several crypto-related supervisory guidelines. Long argued that only a federal law could override that position and urged Congress to act swiftly.

The internal divide among Democrats exposes the fragile nature of bipartisan crypto policymaking in Washington. While both parties agree on the urgency of establishing a regulatory foundation for digital assets, sharp disagreements remain over how to balance innovation with systemic risk and national security concerns. Despite their objections, the Democratic senators who signed the statement maintained they are “eager to continue working with our colleagues to address these issues.” This leaves the door open for possible compromises—but time is running short as the bill approaches a Senate floor vote.

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Meanwhile, Arizona Governor Katie Hobbs vetoed legislation that would have allowed the state to hold Bitcoin as part of its official reserves. The bill, known as Senate Bill 1025 or the Digital Assets Strategic Reserve proposal, sought to authorize Arizona officials to convert seized funds into Bitcoin (BTC) and establish a reserve overseen by the state government. Governor Hobbs vetoed the bill, citing concerns over the volatility and lack of proven stability in cryptocurrency markets. Her decision was posted on the Arizona State Legislature’s website, drawing immediate responses from both crypto industry advocates and political critics who had hoped to use Arizona as a model for public Bitcoin adoption.

The veto sheds light on the growing tension between pro-crypto lawmakers and more cautious government leaders who remain wary of integrating digital assets into taxpayer-backed programs. The legislation was one of two related Bitcoin bills under consideration. A companion bill, SB1373, which would authorize the Arizona state treasurer to allocate up to 10% of the state’s rainy-day fund to Bitcoin and other digital assets, is still awaiting a final vote. That bill may now face similar resistance from the Governor’s office. Arizona’s efforts mirror failed attempts in other states where similar digital asset reserve proposals have either been vetoed, stalled, or withdrawn due to political friction or fiscal concerns.

In contrast, North Carolina has taken a notably different path. On April 30, the state’s House passed the Digital Assets Investment Act, allowing the treasurer to invest up to 5% of specified funds into approved cryptocurrencies. The bill has since advanced to the state Senate and has been viewed as one of the most significant state-level pushes for digital asset adoption in public finance. Crypto proponents view these measures as essential steps toward financial modernization and hedge strategies in an era of growing distrust in fiat monetary policy. They also argue that cryptocurrencies like Bitcoin offer long-term protection against inflation and geopolitical risk.

While state-level crypto bills face mixed outcomes, momentum is building at the federal level, largely driven by President Donald Trump and his Republican allies. In March, Trump signed an executive order proposing the creation of a “Strategic Bitcoin Reserve” and a broader “Digital Asset Stockpile,” signaling a more bullish federal stance on integrating crypto into national economic strategy. Trump’s initiative, along with GOP-backed legislative proposals, marks a sharp contrast with the Biden administration’s more cautious tone toward cryptocurrencies during its term. His administration aims to challenge what many on the political right see as overreach by banking regulators and the Federal Reserve, especially concerning private crypto use and stablecoin issuance.

Reactions to Hobbs' veto have been swift. Pro-crypto lawmakers in Arizona argue that the state is missing an opportunity to diversify its financial holdings and build a forward-looking investment strategy. Others accused the Governor of aligning too closely with traditional banking interests, at the expense of innovation. Despite the setback, the fight is not necessarily over. Proponents of Bitcoin reserves could reintroduce revised versions of the bill in future legislative sessions. The survival of SB1373 may also hinge on whether lawmakers are willing to amend its provisions to gain the Governor’s support. For now, Arizona joins a growing list of states struggling to define the role of digital assets in government operations. With national crypto policy still in flux and states experimenting with their own approaches, the road to mainstream adoption remains anything but smooth.