Cryptocurrency exchange Coinbase (COIN) recently retracted its support for the latest iteration of the crypto market structure bill, known as the CLARITY Act, just 24 hours before a crucial markup was scheduled. 

This signals significant concerns about the bill’s alignment with the interests of cryptocurrency firms compared to traditional banking institutions, not only for the exchange but also for broader market participants.

Coinbase CEO’s Concerns Over Fair Competition

On Friday, Coinbase CEO Brian Armstrong elaborated on the rationale behind the exchange’s withdrawal in an appearance on FOX Business, expressing his frustration with the notion that banks could use regulatory means to stifle competition in their favor. 

“It just felt deeply unfair to me that one industry [banks] would come in and get to do regulatory capture to ban their competition,” Armstrong stated. He also underscored the importance of a level playing field, asserting that competition should thrive without undue interference from powerful financial entities.

Coinbase CEO emphasized that his concerns resonate with “much of the industry,” highlighting his obligation to advocate for customers who he believes are being shortchanged by the provisions of the proposed market legislation. 

“I declined to opine on the exact—whether the hearing, the markup should happen or not… But I did feel like I had to speak up on behalf of our customers and all Americans here,” he articulated.

Debate Heats Over CLARITY Act

Central to the ongoing debate surrounding the CLARITY Act is a critical disagreement between banks and crypto firms regarding the fate of stablecoin holders and whether they should be entitled to receive reward payments. 

Armstrong has previously raised alarms that the bill might prohibit tokenized equities, impose restrictions on decentralized finance (DeFi), and expand governmental access to financial data, thereby compromising individual privacy. 

Furthermore, he warned that the legislation could shift regulatory authority away from the Commodity Futures Trading Commission (CFTC) and towards the Securities and Exchange Commission (SEC), sidelining competition within the crypto space.

Armstrong Critiques Banking Lobbying Tactics

Armstrong noted the irony in the current situation, pointing out that while banks are indeed leveraging the advantages of cryptocurrency, their lobbying efforts seem aimed at restricting competing firms. 

“Many of these banks are actually very smart,” he acknowledged, referencing the commercial side of banking that is increasingly engaging with crypto. “They’re actually doing deals with Coinbase. We’re powering a lot of crypto and stablecoin infrastructure for them on the commercial side.”

Despite his criticisms of the banking sector’s lobbying tactics, Armstrong expressed optimism that legislators could ultimately resolve the outstanding issues within the crypto market structure bill:

And then their lobbying arm comes to D.C. and thinks of it as very zero-sum and is trying to kill the competition. So, I suspect, like many things, if we get the principles in the room, we can actually get this figured out and make a good deal.

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In a critical week for the cryptocurrency industry, following the delayed markup of the Crypto Market Structure bill (CLARITY Act), House Democrats are calling on the Securities and Exchange Commission (SEC) chair, Paul Atkins, to reinstate enforcement actions against crypto firms. 

The letter, dated January 15, was signed by Representatives Maxine Waters, Sean Casten, and Brad Sherman, who expressed concerns regarding the SEC’s recent retreat to investigate and prosecute alleged violations related to “digital asset securities.”

House Democrats’ Allegations

The representatives highlighted that since January 2025, the SEC has dismissed or closed more than a dozen cases involving crypto-related activities, including litigations against major players like Binance, Coinbase, and Kraken. Just this week, the SEC also closed its case against the Zcash Foundation.

In their letter, the lawmakers alleged that given the industry’s “troubling history of harming investors,” the SEC’s decision to pull back raises serious questions about its priorities and effectiveness. They warned that this shift puts both investors and the broader US economy at considerable risk.

Moreover, the representatives highlighted unprecedented lobbying and monetary contributions to political figures, including President Trump and his associates, from the digital asset sector. They pointed out that this could have influenced the SEC’s decision to abandon a majority of its crypto enforcement actions. 

Alleged Conflicts Of Interest Between Trump And Crypto 

These concerns follows months of allegations from the Democratic Party suggesting conflicts of interest between the Trump administration and the crypto industry, particularly highlighted by last year’s pardon for former Binance CEO Changpeng Zhao (CZ) and connections to the Trump-affiliated World Liberty Financial (WLFI).

According to the lawmakers, the SEC’s choice to walk away from these enforcement cases has raised suspicions of a possible pay-to-play dynamic. They argued that allowing violators of securities laws to escape without repercussions contradicts the SEC’s primary responsibility. 

Furthermore, the Representatives claim that recent statements by Chair Atkins, who said that ‘most crypto tokens are not securities’, have caused confusion.

The Democrats further pointed out that this lack of enforcement against digital assets leaves investors “vulnerable” and allegedly fails to protect them from potential violations in the market.

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The recently released draft of the CLARITY Act, a significant piece of legislation aimed at regulating the crypto market, has ignited a wave of criticism from supporters within the community. 

Initially, the bill was meant to include protections for developers. However, expert commentary suggests that it opens the door to continued prosecution of developers and enhances surveillance measures for users of non-custodial software. 

Crypto Market Structure Bill Draft Lacks Essential Protections 

Market expert Ryan Adams highlighted another key issue in the crypto bill, stating that if banks succeed in eliminating stablecoin yield provisions within the CLARITY Act, it would indicate that the Senate is prioritizing bank interests over those of the general public.

Adams’s concerns were echoed by various users, who opined that the strategy appears orchestrated to allow banks to benefit by controlling how yields are managed and distributed. 

An independent report by The Rage reinforces these worries, detailing how the proposed draft includes so-called developer protections that may fall short.  Notably absent are safeguards against the rigorous implications of the Bank Secrecy Act (BSA) for self-custodial wallets. 

Additionally, the draft hints at possible applications to decentralized finance (DeFi) that could empower agencies to implement Travel Rule-like regulations, along with anti-money laundering (AML) measures targeting web-based interfaces and blockchain analysis firms.

Per the report, the Senate has already received 137 amendments to the draft ahead of its markup, scheduled for January 15. A revised version of the Blockchain Regulatory Certainty Act (BRCA) is also included, which has been seen as vital for protecting developers. 

BRCA Loopholes

While the BRCA offers exemptions under AML and counter-terrorist financing regulations, it continues to leave developers vulnerable to accountability for the actions of users utilizing their software. 

The BRCA states that “non-controlling” developers—defined as those without unilateral control over digital asset transactions—will not be categorized as money transmitters under the relevant laws. However, this only alleviates certain charges and doesn’t prevent criminal liability for those whose software is misused.

Pro-crypto Senator Cynthia Lummis remarked on this aspect of the BRCA, indicating that it retains all necessary AML protections, which implies that despite any positives, accountability remains a looming threat for developers.

Simultaneously, the “Keep Your Coins Act” within the draft includes provisions claiming that federal agencies cannot prohibit self-custody of digital assets. However, further stipulations assert that this right does not prevent the application of laws concerning illicit finance, leaving loopholes for government intervention.

The Securities and Exchange Commission’s (SEC) past attempts to impose a broker rule that would classify decentralized finance services as intermediaries requiring reporting obligations have been echoed in the current draft. 

This time, the Senate Banking Committee appears to be leaning towards a similar regulatory approach, aiming to provide guidance on BSA and AML compliance for “non-decentralized finance protocols,” thereby raising concerns about the implications for crypto developers who maintain and update protocols.

Privacy Concerns Mount

Under the new sections, the Senate Banking Committee introduces a concept termed “Distributed Ledger Application Layers,” which the report claims invites scrutiny and creates compliance obligations for software applications that allow users to interact with decentralized finance protocols. 

The provisions also compel the Treasury to develop additional oversight mechanisms to mitigate exposure to illicit financing risks identified through distributed ledger analysis tools, effectively ensuring that crypto transactions remain under close scrutiny.

As it currently stands, the lack of robust protections for developers and users involved in privacy-enhancing technologies in this current draft suggests that the Senate’s proposal for market structure will do little to safeguard non-custodial developers. 

Instead, it further entrenches their vulnerability to government oversight and user surveillance. Ultimately, these developments present a significant challenge for privacy software users and developers.

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As the January 15 markup of the crypto market structure bill—known as the CLARITY Act—draws closer, reports indicate that Coinbase (COIN) is reconsidering its support for the legislation. 

A Monday report from Bloomberg suggests this shift in position is contingent on whether the anticipated bill includes provisions beyond enhanced disclosure requirements tied to stablecoin rewards.

High Stakes For Coinbase

The CLARITY Act is expected to be marked up in at least one Senate committee this Thursday, and Coinbase’s potential withdrawal could have significant implications for the bill. 

A source familiar with Coinbase’s stance told Bloomberg that the exchange would re-evaluate its support if the legislation veers too far from its interests, particularly regarding stablecoin incentives.

Some insiders suggest the bill might restrict the ability to provide rewards to regulated financial institutions, a move that aligns with the banking sector’s concerns about losing deposits to crypto platforms.

Coinbase currently holds applications for a national trust charter that could permit it to offer those kinds of rewards under regulatory rules. However, many crypto-native firms are pushing back against potential restrictions, arguing that such measures could disrupt competition in the market.

The stakes for Coinbase are high, as rewards programs play a crucial role in its business model. The exchange allows users to earn 3.5% rewards on Circle’s USDC holdings. 

Should the market-structure bill include bans on these incentives, fewer users might choose to hold stablecoins on the platform. This could jeopardize an anticipated revenue stream projected at $1.3 billion in 2025, according to Bloomberg.

Banking Vs. Crypto

The GENIUS Act, passed into law in July of last year, prohibits stablecoin issuers from offering interest on token holdings, and does not prevent third-party partners like Coinbase from providing rewards tied to customer balances. 

The banking industry, however, argues that allowing exchanges to pay such rewards could negatively impact bank deposits and, consequently, community lending. 

As reported by Bitcoinist over the past month, the American Bankers Association (ABA) has voiced concerns that this situation could displace “billions” from local lending, allegedly harming small businesses and households.

In contrast, Faryar Shirzad, Coinbase’s chief policy officer, has argued that maintaining rewards tied to stablecoins is crucial for preserving the dollar’s dominance, especially in light of China’s announcement to start offering interest on its digital yuan.

Banking Lobby Fights Back

A potential compromise being discussed would permit only licensed banking entities or financial institutions to provide rewards on stablecoin balances. 

Recently, five crypto firms, including Ripple, Circle, and Paxos, received conditional approvals from the US Office of the Comptroller of the Currency (OCC) to become national trust banks, a move met with opposition from the banking lobby. 

If restrictions are indeed imposed, the report suggests that this could lead to creative workarounds as crypto firms seek alternative ways to reward customers. 

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In a major new development for the crypto industry, Senators Ron Wyden and Cynthia Lummis announced on Monday evening the introduction of a bipartisan, standalone version of the Blockchain Regulatory Certainty Act (BRCA). 

This legislation aims to provide much-needed clarity for software developers and infrastructure providers in the blockchain space, particularly concerning their classification under federal law.

New Crypto Bill To Protect Blockchain Developers 

According to the detailed press release regarding the matter, the BRCA specifies that developers and providers who do not have control over user funds will not be classified as money transmitters. Senator Lummis highlighted the ongoing challenges faced by blockchain developers, stating: 

Blockchain developers who have simply written code and maintain open-source infrastructure have lived under threat of being classified as money transmitters for far too long. This designation makes no sense when they never touch, control, or have access to user funds, and unnecessarily limits innovation. 

Lummis emphasized that the bill provides developers with the clarity needed to advance digital finance without the fear of legal repercussions for activities that do not pose a money laundering risk. Lummis added, “It’s time to stop treating software developers like banks simply because they write code.”

Senator Wyden echoed these concerns, arguing that imposing the same regulatory requirements on developers as those applied to exchanges or brokers is fundamentally flawed. 

Main Highlights Of The BRCA

The Blockchain Regulatory Certainty Act aims to set clear federal standards defining when blockchain developers and service providers can be exempt from money transmitter regulations. 

Under current legislation toward crypto, the Senators assert blockchain developers face regulatory ambiguities that have not only stifled innovation but also driven many projects offshore, as they navigate conflicting regulations across different states.

The bill specifically establishes that a “non-controlling developer or provider” refers to any entity that develops or maintains distributed ledger technology but does not possess the unilateral authority to initiate or execute transactions involving users’ digital assets without third-party consent.

In addition, the crypto bill clarifies protected activities, including the development or publication of software for distributed ledgers, maintenance services for blockchain networks, offering customer self-custody solutions, and providing necessary infrastructure to support distributed ledger services. 

Importantly, while the bill allows states to enforce their laws consistent with federal regulations, it also prevents them from imposing money transmitter requirements on developers engaged solely in the specified protected activities.

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