Coinbase withdraws support for Senate Clarity Act

January was a historic month for the cryptocurrency industry. The Senate will begin negotiating the finer details of the Clarity Act, a major law that would finally enshrine the basic structure of how the cryptocurrency market operates legally in the United States: which digital assets are considered a security versus a commodity, what regulatory responsibilities companies must adhere to, and what legal protections consumers can have. The House of Representatives had already passed its version months ago. The White House was ready to sign it. Democrats and Republicans appear to agree on the basics of the bill.

Cryptocurrencies, which have spent decades navigating a regulatory gray area, will finally have a set of rules to work by — perhaps not perfect rules, but strict rules. “(We) don’t want to be in a place where, with every administration changing, what you can and can’t do with software, or what you can and can’t deploy,” said Connor Brown, head of strategy at the Bitcoin Policy Institute. Edge.

Last Wednesday, just before midnight, it all came crashing down.

Hours before the Senate Banking Committee convened on Thursday — a period during which a group of Republicans and Democrats negotiate every word, provision, and amendment in the draft’s hundred-plus numbers, preparing it for a final vote in the Senate — Coinbase, the world’s largest cryptocurrency exchange, announced that after reviewing the final draft of the bill, it would withdraw its support for the CLARITY Act entirely.

“We would rather have no bill than a bad bill.” X CEO Brian Armstrong saidand then Blame a third party: Big banks, whose lobbyists swooped in at the last minute to curb the threat of customers storing their money in crypto wallets instead of savings accounts.

Armstrong had several specific objections, but one Coinbase hill seemed poised to die: whether cryptocurrency holders would be able to earn interest or other rewards from holding stablecoins, a token whose price is tied to the value of the U.S. dollar, the way consumers can earn interest on money deposited in traditional bank accounts. (Coinbase did not return a request for comment.)

Banking Committee Chairman Tim Scott (R-SC) immediately rescinded the markup, Just a short pause To renegotiate. Lobbyists began calling and analysts began analyzing the draft. But it is worth noting that the vast majority of the largest players in the cryptocurrency space, from exchanges to investors, have publicly announced that they will support the Senate bill, and implicitly criticized Coinbase for blocking its passage.

“Reasonable people can disagree on specific judgments. This is precisely why the final stage of this process is so important,” Kraken CEO Arjun Sethi said. He said on ThursdayHe stressed his support for the Clarity Law. The correct response to the outstanding issues is to resolve them and not abandon the years of progress achieved by the two parties and start again from scratch.” He shared his feelings a16z Managing Partner Chris Dixon, Ripple CEO Brad GarlinghouseEven David Sachs, the powerful White House special advisor on artificial intelligence and cryptocurrencies, urged Coinbase to “resolve any remaining differences” before the end of the month.

While the rest of the industry is willing to deal with the issues Armstrong pointed out in exchange for a law, Coinbase — a publicly traded company that offers yield-paying stablecoin accounts — will suffer the most if the interest issue remains unchanged. But there is a real deadline for passing any kind of significant cryptocurrency-related legislation, and it starts the moment members of Congress start running for re-election.

Midterm elections are generally certain to eliminate any incentive to reach bipartisan consensus, but that’s especially so this cycle, as elected officials will have to confront angry voters who might see support for CLARITY as a proxy for Trump’s support. It doesn’t help that Senate Republicans are trying to dismiss a provision written by Democrats that would prevent Trump from profiting from crypto assets. Campaigning begins in March, and the Senate will not convene next week, giving them less than a month to settle any issues before shifting into campaign mode.

That’s a very short period of time for the Banking Committee to renegotiate new language, draft the bill, send it to the Senate Agriculture Committee (which is responsible for regulating commodities), and negotiate further before it even reaches the Senate floor for a full vote. And “floor time” — when the Senate can summon all 100 members to vote in person on a bill — is becoming an increasingly scarce commodity ahead of election season. (Most of which will likely be burned to avoid another government shutdown.)

Postponing the bill until next year is not a safe option either. Republicans are widely expected to lose either the House or the Senate, giving Democrats the means to block passage of the CLARITY Act for any reason they cite. Although the current president may be a steadfast ally of the cryptocurrency industry, there is no telling who will come after him, let alone how they will feel about cryptocurrencies.

“Will we ever have a situation as favorable as we have now? It’s hard to imagine,” said Seth Hertlein, global head of policy at Ledger. “Could it happen? Sure, maybe, no one knows. But there is certainly a sense that if we don’t get it done now, either it won’t happen, or it will happen on much less favorable terms.”

Meanwhile, however, policymakers in Washington, D.C., are frustrated that Coinbase has reopened a debate that appeared to have been settled last year: The House of Representatives has already spent years writing and negotiating a cryptocurrency market structure bill, which It passed last August on an overwhelming bipartisan vote. In defense of Coinbase, the Senate version now had to contend with the demands of the financial industry, which did not initially impact the structure of the cryptocurrency market until late last year, as well as progressive Democratic senators on the committee. Naturally, the Senate insisted on writing its own version of the bill rather than working on the House version.

“The Senate is where bills die in the House,” Hertlein said. “It’s a common joke in Washington.”