Has Coinbase jeopardized the political landscape of the crypto industry?
January was set to be a pivotal month for the crypto landscape. The Senate was gearing up to iron out the details of the CLARITY Act, a significant piece of legislation that would establish a clear framework for how the crypto market could legally function in the U.S. This included defining which digital assets would be classified as securities versus commodities, outlining the regulatory obligations for companies, and detailing consumer protections. The House had already passed its version months earlier, and the White House was poised to endorse it. Both Democrats and Republicans appeared to be on the same page regarding the bill’s core principles.
After years of operating in a regulatory gray area, the crypto industry was finally on the verge of having a definitive set of rules—imperfect, perhaps, but concrete. Connor Brown, Head of Strategy for the Bitcoin Policy Institute, expressed the need for stability, stating, “We don’t want to be in a place where, with the change of every administration, what you can and can’t do with software, or what you can and can’t publish, changes.”
However, just before midnight last Wednesday, everything unraveled.
Hours before the Senate Banking Committee was scheduled to convene for markup—a crucial stage where lawmakers would negotiate every detail of the draft—Coinbase, the largest crypto exchange globally, announced it was withdrawing its support for the CLARITY Act after reviewing the final draft.
“We’d rather have no bill than a bad bill,” CEO Brian Armstrong stated on social media, attributing the last-minute change to the influence of major banks whose lobbyists aimed to mitigate the risk of customers opting for crypto wallets over traditional savings accounts.
Armstrong raised several specific concerns, but one key issue for Coinbase was whether crypto holders could earn interest or rewards from stablecoins—tokens pegged to the U.S. dollar—similar to how consumers earn interest from bank deposits. (Coinbase did not respond to requests for comment.)
In response, Banking Committee Chairman Tim Scott (R-SC) promptly canceled the markup, calling it a “brief pause” to renegotiate. Lobbyists began reaching out, and analysts started dissecting the draft. Notably, most major players in the crypto space, from exchanges to investors, publicly voiced their support for the Senate bill, criticizing Coinbase for jeopardizing its progress.
“Reasonable people can disagree on specific provisions. That is precisely why the final stage of this process matters,” said Kraken CEO Arjun Sethi, reaffirming his backing of the CLARITY Act. His views were echoed by other industry leaders, including a16z managing partner Chris Dixon and Ripple CEO Brad Garlinghouse, who urged Coinbase to “resolve any remaining differences” before the month’s end.
While the broader industry is willing to address the issues Armstrong highlighted in exchange for a law, Coinbase—a publicly traded company that offers yield-bearing stablecoin accounts—stands to lose the most if the interest question remains unresolved. The clock is ticking on meaningful crypto legislation, especially as Congress members prepare for re-election.
Midterm elections typically dampen bipartisan cooperation, and this cycle is no exception, with officials facing constituents who may view support for CLARITY as aligning with Trump. Complicating matters, Senate Republicans are attempting to exclude a Democrat-written provision aimed at preventing Trump from profiting off crypto assets. With campaigns kicking off in March and the Senate not in session next week, lawmakers have less than a month to address any outstanding issues before shifting into campaign mode.
This timeline is incredibly tight for the Banking Committee to renegotiate language, finalize the bill, send it to the Senate Agriculture Committee for further regulation discussions, and ultimately bring it to the Senate floor for a vote. “Floor time”—the opportunity for all 100 Senate members to vote in person—is becoming increasingly scarce as election season approaches, with much of it likely consumed by efforts to avert another government shutdown.
Delaying the bill until next year isn’t a safe bet either. Many anticipate that Republicans may lose control of either the House or the Senate, giving Democrats the power to block CLARITY for any reason they choose. While the current president is seen as a supporter of the crypto industry, the future remains uncertain, and it’s unclear how his successor might view crypto.
“Will we ever have a setup as favorable as we do right now? Hard to imagine,” said Seth Hertlein, global head of policy at Ledger. “Could it happen? Sure, maybe, nobody knows. But there’s definitely a sense that if we don’t get it done now, either it’s not going to happen, or it will happen on much less favorable terms.”
Meanwhile, policymakers in D.C. are frustrated that Coinbase reignited a debate that seemed settled last year. The House had invested years in crafting and negotiating a crypto market structure bill, which passed with overwhelming bipartisan support last August. In Coinbase’s defense, the Senate’s version now had to navigate the finance industry’s demands, which only emerged late last year, along with the progressive Senators on the committee. Additionally, the Senate insisted on drafting its own version rather than adopting the House’s.
“The Senate is where House bills go to die,” Hertlein remarked. “That’s a common Washington bubble joke.”
