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Last week, as I monitored Coinbase’s stance against the Clarity Act, a common concern echoed among D.C. insiders: The crypto sector might be running out of runway to secure a bipartisan market structure law that favors them. With midterm elections looming, Congress is poised to shift focus to campaigning, sidelining policymaking and cross-party cooperation. In corporate speak, this translates to inevitable changes in personnel, with successors who may not be as crypto-friendly.
However, the political scene was suddenly upended when ICE agents fatally shot an ICU nurse during an anti-ICE demonstration in Minneapolis on Saturday. This incident sparked nationwide outrage, pushing policy discussions to the sidelines as politics took center stage at the Capitol.
Partisanship had already started leaking into the Clarity debate, said Cody Carbone, the CEO of The Digital Chamber, a major digital asset and blockchain industry trade association in Washington. Most of the opposition to the last Clarity draft came from Democrats, as well as two Republicans who represented states with large banking industries. (One of them, Sen. Thom Tillis of North Carolina, is retiring this year due to his opposition to Trump.) But Carbone raised concerns that Pretti’s death would prompt each party to become more hardline, both in the Senate and the House (which would have to review the bill again if the Senate made substantial changes). More floor time would be dedicated to deeply partisan, existential battles, from government shutdowns to hearings. And crypto was in danger of being lost in the fold, to the detriment of both parties.
This interview has been edited for clarity and length.
I think the biggest issue right now holding up the bill is whether stablecoin issuers are going to be able to continue to issue rewards to consumers. So right now, if you are on Coinbase and you’re holding USDC, you get 3.5 percent from your holdings in terms of rewards.
Is it like a cashback program, or an interest payout?
Way higher. Right now, under the GENIUS Act, it is not prohibited to offer these rewards. It is prohibited to offer yields. So the banks are calling it a loophole. Now, there’s nothing in the bill that prohibits the banks from offering rewards or higher interest rates, but that is what’s holding up market structures. The banking industry is saying, The only way we can prohibit stablecoin issuers, or anyone holding stablecoin offering these rewards, is to have it addressed now in market structure legislation. So they have lobbied really, really hard to get a full prohibition on rewards in this bill.
How much exactly does Coinbase stand to lose if this provision goes through?
It has to be bipartisan. The only way this bill can pass the Senate floor is if they get 60 votes, so they will need at least six Democrats. There’s a group of 12 Democrats who have earnestly been working day by day with a majority of Senate Republicans to get this done. There were over a hundred Democrats in the House who supported it, so this should be a bipartisan issue.
The Democrat negotiators have gotten a lot of what they’ve asked for, at least in the Senate banking bill, so I’m hoping that they can come to the table and say, You know what?
We want to support this, and we’re gonna vote yes. Even though it is a completely partisan climate, this is one of the few issues that could be bipartisan, and it has been demonstrated to be bipartisan. Even this year in the Senate, with the GENIUS Act’s passage, and then the House with the Clarity and GENIUS acts’ passage.
What does crypto look like as an issue going into the midterm elections? Like, is it too closely tied with MAGA and Trump, or will it be less of a factor that drives voters’ decisions?
Well, it’s really interesting. When you talk to the average voter, it’s not the number one issue that comes out, especially in today’s climate. But we conducted a survey at the end of last year where we looked at the political leaning of crypto holders. They actually lean left, and they tend to be more Democratic-leaning or have historically supported Democrats. However, crypto holders are super intense about crypto. They’re single-issue voters, and they vote with their wallets. So even though they tend to lead politically left, they’ve been voting Republican because they perceive Republicans to be more supportive of crypto.
Number one is what [New Jersey Democratic Sen.] Cory Booker does. So [Minnesota Democratic Sen. Amy] Klobuchar, the ranking member, delegated the task of negotiating this bill with the Chairman [Arkansas Republican Sen. John Boozman] to Booker.
She’s quite busy. So Booker has been working earnestly with the chairman. It has been the Senate Ag Committee’s stated intention from the start of this Congress: We want to have a bipartisan product. That’s really important to us. That manifested itself in a bipartisan discussion draft that came out a few months ago. However, the most recent text that came out last week was the first product that came out that was not bipartisan. Democrats said, Hey, we’re not signing onto this. However, we’re continuously working with Republicans to get to yes.
Just based on the people in power on the Democratic side for the committees of jurisdiction, it’ll mean a lot. If you look at the House Financial Services Committee, [California Rep.] Maxine Waters, who would take back over as chairwoman, is not a fan of this technology. So that makes it difficult right out of the gate to move this through. Same thing in Senate Banking. It’s almost even worse for the crypto industry, because [Massachusetts Sen.] Elizabeth Warren is a ranking member and would become the chairwoman.
If either of those chambers flip, I don’t see how the Clarity Act would be possible, because those two committee chairs will not try to move these issues through. Their focus will be on enforcement. I imagine there’ll be a lot of subpoenas and they’ll want to look into the Trump family’s dealings around crypto. There’s not going to be any interest in passing crypto legislation that will help in terms of adoption.
I would say most of the Democrats right now. And then there are a few Republicans who are very concerned about what the banking industry is saying because they represent a large population of community, regional or large banks. [Republican Sen.] Thom Tillis represents a huge banking capital in Charlotte, North Carolina. He’s been very concerned about what rewards will do for deposit flights. We’ve heard from [Alabama] Sen. Katie Britt and she’s been very concerned about what her community banks are saying about how stablecoins could outcompete them.
Again, my counter to all of them is that there is nothing in this bill that prohibits the banks from issuing their own stablecoins and offering rewards and competing with crypto exchanges. To me, this is all about competition and trying to keep a competitive moat. But there are Republicans who are very concerned and at the negotiating table. They are always very clear that they’re not anti-crypto and they’re not anti-stablecoins, but they want to make sure that the banks are protected. So hopefully we find a compromise soon. I just still think we’re in that limbo where no one knows what that compromise is yet.
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