Update 881 – Crypto Week in House:
Bumpy Ride on the Digital Express
This week is “Crypto Week,” or “Anti-Crypto Corruption Week,” depending on who you ask. Many of Trump and the GOP’s financial regulatory objectives are approaching fruition, with major pieces of crypto legislation up for a vote in the House this week. One of those, the GENIUS Act, could make it to Trump’s desk by Friday, depending on whether or not the GOP leadership can get conservative hardliners in line again after a procedural setback.
What is in these bills leaves consumer advocates, government ethics watchdog groups, and many more concerned. Not surprisingly, the GOP decided to include their own priorities on crypto policy without much compromise, and as a result, the legislation up for debate provides little more than the veneer of proper regulation for crypto markets while doing little to address corruption and illicit activity. We summarize the bills and examine areas of concern below.
Best,
Dana
State of Play for Crypto in Politics
This week, the GOP plans to put forward the GENIUS Act (S.1582) and the CLARITY Act (H.R.3633) for a House vote during what they have dubbed “Crypto Week.” Originally, the GOP planned to vote on the CLARITY Act on Wednesday and the GENIUS Act on Thursday. If both bills are signed into law, it will be a win for the crypto industry, the Trump administration, and the GOP, who have fully embraced pro-crypto policy. These bills will provide light-touch regulation, along with regulatory clarity and legitimacy. After another protest by the House Freedom Caucus was resolved on the motion to proceed, the hardliners delayed the floor vote on the rules yet again, leaving the GOP leadership’s plans for crypto in limbo as of midday on Wednesday.
The fact that Congressional Republicans are even holding a so-called “Crypto Week” is a testament to the success of the crypto industry’s lobbying efforts. The crypto industry spent $130 million in the 2024 election helping to elect 253 pro-crypto candidates. CNBC estimates that nearly half of all corporate money in the election was spent by pro-crypto groups, making the 119th Congress the most pro-crypto in history.
Their efforts have paid off so far. Beyond the two major pieces of crypto legislation heading to the floor this week, the Trump administration has been unapologetically pro-crypto. Trump established a working group to push forward pro-crypto regulations, stated his desire to create a crypto reserve, and increased his investments and overall exposure to the crypto industry, despite the Emoluments Clause theoretically making this illegal. Congress is now packed with individuals looking to further the interests of the crypto industry, with Senator Cynthia Lummis (R-WY), House Majority Whip Tom Emmer (R-MN), and Senator Kirsten Gillibrand (D-NY) ranking as the most pro-crypto politicians, according to the industry’s own rankings. This is an immense amount of power for an industry that only formally began back in 2009 with the creation of the first cryptocurrency. Their efforts are already increasing crypto values, with Bitcoin now trading above $120,000 for the first time ever, in anticipation of the pro-crypto legislation to come.
Source: Axios
A Summary of the Bills
To summarize our more in-depth discussion of the bills from a month ago, both bills – GENIUS and CLARITY – would build a regulatory framework for digital assets, which have long existed in a contested regulatory area. This uncertainty exists in part by design. Crypto-based financial activities, rooted in the notion of decentralization, were originally conceived of as a way for finance to exist outside of the traditional financial system. As the industry has matured, it increasingly seeks to be seen as a legitimate financial enterprise by potential investors and seeks clarity on the regulations it must abide by. Both of these bills would provide that, but by providing a light-touch framework that only requires a bare minimum level of oversight of the industry, regulation falls short of providing the strong guardrails one would expect for a particularly volatile market that is rife with illicit activity.
The GENIUS Act, which has already passed through the Senate, would establish a new regulatory framework for the issuance and exchange of stablecoins, which are digital assets that have their price pegged to another asset (such as the US dollar) and are backed up by a pool of a reserve assets (such as treasury bills) to underpin their value. Given that the industry advertises stablecoins as the less volatile, “safer” digital asset to invest in as compared to the alternatives, and that stablecoins are the key tokens used to facilitate speculative investment on crypto platforms, it is only logical that the first bill Congress’s crypto advocates wished to push through focused on them. The GENIUS Act would do the following:
- provide definitions of “payment stablecoins” and “permitted payment stablecoin issuers” for federal regulators to use and the industry to comply with.
- establish licensing standards for stablecoin issuers, such as required reserves to back their assets and rules for prioritizing consumer holders in the event of bankruptcy.
- requires that any issuer that issues stablecoin assets of $10 billion or more register with the Office of the Comptroller of the Currency (OCC), while smaller issuers register with the states, provided that the state in question has a regulatory regime “substantially similar” to the federal one.
- designate stablecoin issuers as financial institutions under the Bank Secrecy Act, reaffirming stablecoin issuers’ obligations to adhere to anti-money laundering and sanctions laws.
The CLARITY Act, on the other hand, is a market structure bill that would shape the overall regulatory landscape for much of the digital asset market. This framework would do the following:
- place the vast majority of regulatory authority over digital asset markets under the Commodity Futures Trading Commission (CFTC), rather than the Securities and Exchange Commission (SEC).
- implement a provisional registration regime for digital commodities to follow while the CFTC determines the details of its crypto regulations.
- create regulatory definitions for “mature blockchain systems” to decide the regulatory burden put on digital assets, where a more “mature” blockchain is one that has achieved a certain level of decentralization.
- largely exempt a range of DeFi actors and activities from direct oversight.
- establish minimal consumer protection requirements, such as requiring the delisting of tokens deemed unsafe by federal regulators and requiring issuers to provide regular disclosures for their ongoing projects.
Major Issues
The SEC, which previously had taken an active role in combating fraud and regulatory non-compliance in the crypto industry, has not been allocated a significant role under either bill. These bills place the OCC and CFTC in charge of regulating digital assets as de facto currencies and commodities, respectively. A more powerful SEC would be stricter in its regulatory approach, even under pro-crypto Chair Paul Atkins. Both bills ensure a great deal of flexibility through carve-outs and loopholes. The Genius Act establishes a high threshold for the dollar value of a firm’s digital assets to require federal regulation, and the CLARITY Act gives significant leeway to various DeFi activities.
Corruption
Beyond the potential flaws and critiques of these proposals, the elephant in the room is both the crypto industry’s ties to illicit finance and, more recently, the threat of political corruption posed by the Trump family’s forays into crypto. Neither bill sufficiently restricts elected officials from issuing their own cryptocurrencies or requires them to divest digital assets. This concern has intensified since Trump’s election, as he’s openly used crypto to enrich himself.
Since taking office, Trump and his family have launched a flurry of questionable crypto ventures. Trump has leveraged his affiliated startup, World Liberty Financial, and his memecoin, $TRUMP, to generate tens of millions in profits for himself and his family. Alarmingly, Trump rewarded major $TRUMP buyers with access to himself via a private dinner. Trump launched a stablecoin, USD1, via World Liberty Financial, which was quickly used to finance a $2 billion deal between disgraced crypto platform Binance and a shadowy VC arm of the UAE government. Trump Media has announced a plan to raise $2.5 billion from shareholders to buy bitcoin, even as Trump has promoted a push for policies such as a government crypto reserve, which would inflate bitcoin’s value. He’s also directed regulators to dismiss cases against crypto platforms that have donated millions in political contributions to him or made major investments in his crypto projects, best illustrated by the SEC’s dropped fraud case against Justin Sun, who, months before the case’s dismissal, made a $75 million investment in World Liberty Financial.
Congress does have the power to address the Trump administration’s actions – the Emoluments Clause of the Constitution was created to prevent exactly these scenarios, which are similar to those seen during the first Trump administration. However, Congress seems unable or unwilling to use its enforcement power, and existing government ethics laws that apply to Congress and other parts of the Executive branch don’t currently extend to the President or Vice President. Nonetheless, Congress can change this – current crypto legislation could establish new restrictions on Trump’s (or any President’s) ability to promote, issue, or otherwise engage in crypto-related activities while using their position as President simultaneously. Several Members of Congress have introduced legislation or amendments to do just that. But, sadly, while the GENIUS Act contains some language that restricts some public officials from such activity, it does not go far enough. That means the status quo for now is that the President’s crypto ventures remain a huge avenue for opaque political influence.
Money Laundering
Neither bill meaningfully addresses crypto-enabled money laundering. Digital currencies, with their decentralized design, have become a go-to tool for criminals and extremist groups to evade international law enforcement. Chainalysis estimates nearly $100 billion has moved through illicit wallets since 2019. The DOJ has prosecuted cases involving Mexican drug cartels and terrorist organizations using crypto, with the major stablecoin Tether frequently linked to these illegal activities.
Yet the bills fall short. The GENIUS Act exempts offshore stablecoins from its money laundering rules, allowing entities like Tether, based in the British Virgin Islands, to operate largely unchecked. The CLARITY Act isn’t much better—its broad exemptions and safe harbors for DeFi leave plenty of room for bad actors to exploit the system.
Fraud
The lax oversight provided by the GENIUS and CLARITY Acts also means that federal regulators will have a challenging time reducing crypto-related scams and fraud. This is a particularly salient issue, as crypto fraud has increased at an alarming rate ever since crypto first became mainstream. According to the FBI, consumers reported $9.3 billion lost to crypto-related scams in 2024 alone – a huge increase from the previous year’s alarming figures, and most likely a significant undercount, given most victims of financial scams fail to report their losses. Through various scams, criminals have exploited underinformed investors seeking to invest in increasingly popular digital assets. Since crypto activity is difficult to trace, those who fall for these scams often have limited recourse for recovering their money. The various carveouts and loopholes in the GENIUS Act and the CLARITY Act allow the industry to operate with minimal government oversight, enabling bad actors to exploit areas with little regulation and conduct their scams, ultimately costing consumers.
What To Expect From Crypto Week
As mentioned previously, the House GOP’s leadership originally wanted to put the CLARITY Act up for a floor vote on Wednesday and the GENIUS Act up for a vote on Thursday. A push by House Financial Services Committee Chair French Hill (R-AR) to bundle the two bills was originally shot down as this would make the final product harder to pass. The GENIUS Act would essentially have to be sent back to the Senate if it is bundled, potentially denying Trump the quick legislative win on crypto he asked for. The CLARITY Act, in whatever form it takes if and when the Senate considers it, needs to pass in such a form that it can make it through both the Senate Banking Committee, the committee that has taken a leading role on crypto, and the Senate Agriculture Committee, the committee that oversees the CFTC.
The passage of the GENIUS and CLARITY Acts was treated as something of a foregone conclusion before the House Freedom Caucus blew up a procedural vote. The reason is that, as reflected by the passage through the Senate by a sizable 68-30 margin, all Republicans appeared to be united on the legislation, and there are plenty of pro-crypto Democrats to help the GOP push the two bills through both chambers of Congress. That said, passage of GENIUS in the Senate proved much more difficult than the crypto industry anticipated, as growing concerns about the industry’s undue influence, the bill’s shortcomings, and the corrupt nature of Trump’s crypto ventures gave many Senators pause.
It turns out, however, that House conservatives have serious concerns about the potential for the Federal Reserve to issue digital assets. Twelve members of the House Freedom Caucus joined all Democrats in voting down a procedural vote for the GENIUS and CLARITY Acts. They have reignited Hill’s push to bundle the bills while also asking for the Anti-Central Banking Digital Currency Act to be included. The Anti-CBDC Act would prevent the Federal Reserve from issuing its own cryptocurrency, on the grounds that it would bring too much centralized control to digital assets. This last piece of legislation is much more partisan, which is why the GOP leadership did not want it bundled with the other bills. While Trump struck a deal with these holdouts, that did not stop some HFC members from raising hell, and now it is not clear how many of the crypto bills will face a final vote today.
Additionally, there is plenty of opposition to these bills from several Democrats. For starters, Democrats are rebranding Republicans’ “Crypto Week” as “Anti-Crypto Corruption Week,” and even some members who are pro-crypto are looking to add more provisions that would rein in Trump’s corruption. Some Democrats are not ignoring the risk that crypto poses to consumers, either. HFSC Ranking Member Maxine Waters (D-CA) published an op-ed for MSNBC excoriating her colleagues for plowing ahead with legislation that “will open the floodgates to massive fraud and financial ruin for millions of American families,” explicitly comparing the bills to the policies that allowed irresponsible practices in the mortgage lending market, which culminated in the 2007 financial crisis. Senator Elizabeth Warren (D-MA) has not held back in her own criticisms, calling the two bills “another industry handout” that will undermine existing securities laws and allow greater volatility in traditional financial markets. As it stands, House Democrats plan to put forward amendments to both bills that aim to address the long list of flaws in both pieces of legislation, though it is unlikely any will be taken up by the majority.
Short-Sightedness on Hill
Any legislation establishing a framework for regulating digital assets should require the industry to meet at least the same standards and requirements as those found in the traditional financial system, while working to prohibit corruption, combat money laundering, and protect consumers from fraud. The GENIUS Act and the CLARITY Act fall far short in this endeavor. The bills cater too much to the whims of the crypto industry while only providing the illusion of proper oversight and accountability, and this will lead to Americans getting hurt. An industry that has grown so large in so short a time should not be treated with a light touch, and it is past time for Congress to apply the same level of scrutiny to an industry that seeks the appearance of legitimacy but without any of the responsibilities.