Update 873 – Crypto Regulation Bills:
Congress Paid/Poised to Please Firms
Congress is forging ahead with major cryptocurrency legislation this week. Two House Committees held markups on and approved the CLARITY Act. Votes are expected later this week on the GENIUS Act in the Senate. These bills would establish new regulatory frameworks for facets of the digital assets market, providing them with regulatory rules that the crypto industry has long sought.
These significant bills risk undermining investor protection and financial market stability. The crypto industry seeks rules of the road on digital assets, but not a restrictive regulatory regime. What do these bills provide? Do they reflect the public interest following the scams, illegal activity, and failures, à la FTX? Crypto markets do need regulations that reflect their inherent risks, but these bills do not provide that, as we detail below.
Best,
Dana
Even with debate over Trump’s reconciliation megabill in full swing, the Hill GOP has found time to further another of its priorities: pro-crypto legislation. Republicans’ efforts are focused on two bills: the GENIUS Act in the Senate and the CLARITY Act in the House.
The GENIUS Act provides a regulatory framework for stablecoins, which are digital assets whose price is pegged to a currency or commodity (in most cases, the US Dollar), and whose value is backed by a reserve of assets (sometimes traditional assets like Treasuries; other times by crypto assets or other esoteric instruments). The measure is meant to stabilize the assets’ price, so they appear safer and less volatile than other crypto assets. The CLARITY Act, on the other hand, would establish a comprehensive industry-centric regulatory framework for financial market activities involving digital assets across the board.
Both bills are significantly flawed, providing permissive light-touch regulations for an industry that deems itself to be at the forefront of innovation, but has been plagued by tremendous fraud in recent years.
GOP’s Motivation to Pass Crypto-Friendly Legislation
The crypto industry, a once-fringe but now-monied and influential political force, has applied pressure on Congress to pass a “market structure” bill — one that provides a sweeping regulatory framework for digital assets. The crypto industry wants what it calls regulatory clarity for its products. This push may also be an effort by the industry to get ahead of state and federal financial regulators under both Democratic and Republican leadership which have, for over a decade, successfully argued in civil and criminal litigation that many crypto assets and firms are subject to existing financial market regulatory frameworks that apply to securities and derivatives.
The crypto industry recognizes that much of the public — aware of the recent history of scams, predatory business models, and money laundering — is understandably skeptical of and has largely stayed away from digital assets. Crypto advocates espouse the belief that “proper” regulation would go a long way toward legitimizing digital assets. But the industry has called for “light touch” regulation, involving a permissive regulatory framework. The industry argues that anything more would hinder the growth and innovation of digital assets.
The crypto industry has recently become one of the most politically influential industries in the country. According to lobbying watchdogs, the crypto industry and its related PACs successfully spent over $133 million to elect crypto-friendly candidates in 2024; electing several pro-crypto lawmakers in both parties Many of these politicians are members of the GOP, so, unsurprisingly, they now need to pass the market structure bills the crypto industry is asking for or risk upsetting an industry they will need for donations in the 2026 midterms.
Beyond just donations, Trump himself has become a major advocate for the crypto industry. Despite at one point calling crypto “a scam,” Trump now fully embraces the industry, appointing a crypto council and backing pro-crypto legislation. Trump and his family have now launched their own crypto ventures, including meme coins, to drastically increase their wealth, setting off alarms for ethics watchdogs and anyone worried about how the money “invested” in these ventures could be used to influence the administration. Even as Congress debates the GENIUS Act, Trump’s affiliated crypto platform World Liberty Financial has launched its own stablecoin. It has already inked a $2 billion investment deal using the coin with crypto platform Binance, which was convicted of money laundering and sanctions compliance failures in 2023. As of early May, the Trump family had made itself $2.9 billion richer via crypto.
Finally, with the GOP in control of a governing trifecta, they are in a position to pass a crypto market structure bill without making too many compromises to Democrats. Since the lawmakers most skeptical of the crypto industry, such as Senator Elizabeth Warren (D-MA), are largely Democrats, the GOP has a lot more leeway to make their bill heavily favorable to the industry itself, with fewer guardrails to hold the industry accountable. It helps that there are now many crypto-friendly Democrats in office, such as Senators Angela Alsobrooks (D-MD) and Ruben Gallego (D-AZ).
Last Congress already had a major crypto market structure bill in the pipeline prior to the 2024 elections. FIT21 (H.R. 4763):
- Differentiated between “digital commodities” (thus regulated by the CFTC) and “restricted digital assets” (thus regulated by the SEC), along with oversight of secondary trading of permitted payment stablecoins shared between both agencies. This would have also included registration processes for digital commodity issuers, traders, and brokers with the relevant agencies.
- Set up a process to certify blockchain systems as decentralized, which would, by default, place the system under CFTC oversight and lay out which DeFi activities need to be regulated.
- Set up disclosure requirements – or lack thereof – for the developers and issuers of digital assets.
Though FIT21 was itself a fairly light-touch regulatory framework for crypto, it did include some compromises hammered out between Democrats and Republicans in terms of regulatory scrutiny. While FIT21 passed the House with bipartisan support, it didn’t see similar action in the Senate. Now, with the GOP controlling Washington, Republican leadership has greater leverage to push favorable legislation, such as the GENIUS Act and the CLARITY Act.
The GENIUS Act
Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act, S.1582) is the Senate bill further along in the legislative process, which focuses specifically on providing regulations for stablecoins. The most important features of the GENIUS Act are as follows:
- It sets a definition of “payment stablecoins” and “permitted payment stablecoin issuers” to be used by federal regulators. Definitions such as these are important for laying out the scope of federal regulation.
- It sets the rules for “permitted payment stablecoin issuers,” the only entities allowed to issue stablecoins in the US. It mandates that stablecoin issuers hold a 1:1 reserve of the assets backing their digital assets, so that they can cash out their customers’ holdings when customers seek to redeem their tokens, or in the event of a selloff. It also prohibits the use of these reserves for operational purposes, or in most cases, lending, meaning that, presumably, issuers cannot use these reserves for their business expenses. Issuers would provide monthly disclosures on these reserves, though not required to conduct full audits. In cases where the issuer goes insolvent, the bill creates a bankruptcy process that purports to prioritize customer holdings ahead of other claimants.
- It states that stablecoin issuers with digital assets of $10 billion or more would be regulated by the federal government, specifically the Office of the Comptroller of the Currency (OCC). Smaller issuers would be regulated by the states, provided it’s regulatory regime is “substantially similar” to the federal framework.
- Issuers are required to abide by existing anti-money laundering and anti-terrorism laws, such as the Bank Secrecy Act, though the bill’s language may not actually increase issuers’ obligations beyond what already exists in law. Issuers would also have to have the technical capabilities to freeze or seize stablecoins in compliance with court orders, if need be.
Not surprisingly, the crypto industry and crypto-friendly lawmakers support the bill. Industry advocates have stated that the GENIUS Act “sets the stage for these assets to go mainstream,” giving consumers the tools they need to differentiate between good and bad actors in the stablecoin market while allowing the industry itself to thrive. Senate Majority Leader John Thune (R-SD), who has put a great deal of political capital behind advancing the legislation, praised it for providing regulatory clarity for stablecoins. Crypto-friendly Democrats, such as co-sponsor Senator Alsobrooks (D-MD), who initially voted against cloture on the bill due to the Democrats’ larger concerns, hailed the bill as providing the consumer protections and guardrails that Democrats asked for.
Critics, however, have pointed to several flaws in the bill. As Mark Hays from Americans for Financial Reform has stated, the bill does little to prevent politicians such as Trump from directly benefiting from the issuance of his own stablecoin when Trump administration regulators are meant to create and enforce a new regulatory regime for stablecoins. Crypto skeptics such as Senator Warren were not exactly won over by the bill, as, for all of its safeguards on paper, it provides weaker guardrails and consumer protections for stablecoin issuers than are required for traditional financial institutions, despite allowing issuers to integrate directly into the larger financial system. Stablecoins are designed to function similarly to putting money in a bank deposit or a money market fund, so critics state that it only makes sense that issuers would have to abide by the same standards as a traditional bank.
The GENIUS Act has not been immune to criticism from the right, either. Senator Josh Hawley (R-MO) called it a “huge giveaway to Big Tech” and said that it gives too much power over America’s financial system to tech companies, because it would enable non-financial companies to issue stablecoins with minimal review and oversight. Senator Rand Paul (R-KY) attacked the legislation from his usual libertarian angle, questioning the need for federal regulation of digital assets in the first place.
The CLARITY Act
The Digital Asset Market Clarity (CLARITY) Act of 2025 (H.R. 3633), rather than focus squarely on a specific kind of digital asset such as stablecoins, would provide a regulatory framework for the broader crypto market. While it is similar in mission and scope to FIT21, there are several key differences reflecting the GOP’s greater leverage in constructing their crypto legislation. The most important details of this rather extensive piece of legislation are as follows:
- Like FIT21, it seeks to delineate which assets are covered by the SEC and which are covered by the CFTC.
- The bill would provide a provisional registration regime for digital commodities while the CFTC figures out more detailed regulations.
- The bill focuses on the question of decentralization in assets that use blockchain technologies, and crucial to that is the so-called “mature blockchain system” test. A blockchain qualifies as “mature” if it is highly decentralized, meaning that no one person or group of persons has high levels of common control over it.
- On the issue of decentralized finance (DeFi), the bill would expand DeFi safe harbors by exempting “non-custodial protocol participants” from registration. This would include entities validating transactions, mining crypto, providing data information on trading, and other activities. Beyond that, the bill would generally exempt individuals from market structure regulations if they engage in certain activities relating to a DeFi trading protocol.
- The bill would provide some minimal consumer protections, including requirements for developers and issuers to provide regular disclosures about their business activities and restrictions on token sales to insiders to protect against conflicts of interest in crypto firm activities.
- The bill would also direct the SEC and CFTC to collaborate with foreign governments to allow cross-border information sharing and foster “innovation” in the digital asset market.
Similarly, the crypto industry and its supporters love the CLARITY Act, while its skeptics are averse to it. House Majority Whip Tom Emmer (R-MN) called it “a bold step to ensuring that the next iteration of the internet is developed by Americans and driven by our values.” The DeFi corner of the crypto industry, in particular, gets a lot of what they are asking for out of this bill, with an industry-centric definition of what counts as “decentralized” and very light-touch regulation on decentralized finance.
Critics say that the CLARITY Act takes the flaws of FIT21 and makes them much worse. Former CFTC Chair Timothy Massad had plenty to say about the bill, saying bluntly that it would “generate more confusion than clarity” while undermining decades of established securities law. He stated that the bill excessively relies on decentralization as the lynchpin of its regulatory framework, as it is difficult to define and measure, it can change over time, and is not necessarily even the right metric by which to judge innovation. He also stated that the bill fails to address the primary regulatory gap it aims to fill, and that the legislation’s length and complex definitions create opportunities for regulatory arbitrage. Similarly, in a statement to the House Financial Services Committee, Ranking Member Maxine Waters (D-CA) did not hold back in her criticisms, criticizing the CLARITY Act’s lack of protection against corruption and the weakness of its consumer protection provisions.
The Current Status of the Bills in Congress
The GENIUS Act is up for initial procedural votes in the Senate this Wednesday, while the CLARITY Act went through a dual-committee markup on Tuesday. Even with these actions, however, the process by which both bills are making their way through Congress has not gone as smoothly as the crypto industry hoped. Trump’s blatant ethics violations in pursuing his crypto ventures have caused big issues. At a time when the Democratic base is calling for its lawmakers to do more to fight Trump, opponents of the bills have focused on their lack of anti-corruption provisions to rile up opposition to them. As a result, Democrats unexpectedly blocked the GENIUS Act in its first cloture vote back in May, joined by Senators Hawley and Paul. Thune and Senate GOP leadership had to hammer out new language for the bill that at least symbolically addressed the issue of corruption to win over the crypto-friendly Democrats, which allowed the bill to receive a more favorable result on the second cloture vote.
Even from there, things have not gone smoothly for GENIUS, as a floor vote on the bill was delayed to this week, thanks to continued opposition or intervention from Democrats and Republicans. Most notably, Senator Roger Marshall pressed hard to get his Credit Card Competition Act, bipartisan legislation that would reduce credit card swipe fees, voted on as an amendment to the bill. Thune effectively killed this push by ending the open amendment process for the GENIUS Act, meaning that a vote on Marshall’s amendment and others that could have created problems for the GOP will not receive a vote. As of today, the bill passed its latest cloture vote 68-30.
For the CLARITY Act, it is probably too early to say whether the House bill’s ride will be as bumpy as the Senate’s. That said, many of the same issues that flared up for the GENIUS Act are now flaring up for the CLARITY Act, such as Trump’s crypto ventures. After assailing Trump’s ties to the crypto industry in addition to her own previously mentioned criticisms of the bill, Ranking Member Waters organized a “minority day hearing” over the crypto legislation on Friday, meaning that the witnesses were primarily picked by the Democrats, the minority party. Regardless, on Tuesday, the CLARITY Act passed out of both the House Agriculture and House Financial Services Committees, 47-6 and 32-19, respectively, with bipartisan support in both committees, though considerably more so in the House Agriculture Committee.
All of these delays in what the GOP was hoping would be quick approval for major crypto legislation mean that the bills themselves have been open to greater public scrutiny. Some criticisms that have emerged should greatly concern the GOP, such as a surprising number of critics from the banking industry, who fear that digital assets such as stablecoins would allow issuers to become a “shadow” banking sector. Additionally, while the crypto industry likes to claim otherwise, the broader public’s support for cryptocurrency is quite fragile: back in October, 63 percent of Americans stated that they were not confident in the reliability and safety of cryptocurrency, despite industry lobbying and advertising campaigns, further scandals and losses could once again make politically toxic if the debate over crypto legislation does not produce a regulatory regime that would hold the industry to the same standard that much of the rest of the financial sector is subject to.