Crypto bill in limbo as stakeholders ramp up recess efforts

WASHINGTON — A five-week wait on a crucial Senate vote on major cryptocurrency legislation has opened wide a window of opportunity for both advocates and opponents of the measure, which would flesh out in greater detail a regulatory framework for the still-nascent industry’s U.S. operations.

Just before the Senate adjourned for its summer recess earlier this month, Senate Majority Leader John Thune, R-S.D., punted to Sept. 15 a cloture vote on a motion to proceed to the bill amid lingering disputes and not enough time to resolve them.

The legislation is a 616-page Senate substitute amendment to a House bill that would set regulations for the operations oversight of digital asset markets.

The key sticking point is an ethics provision that would curb the ability of President Donald Trump and other public officials from profiting from crypto ventures. Other disagreements center on provisions that address illicit finance, law enforcement and oversight of crypto network developers, as well as a still-unresolved battle between crypto firms and traditional financial institutions over yield-bearing deposits.

But the crypto industry is bullish about the bill’s odds, amid strong backing from a Trump administration that views the measure as critical to maintain the U.S. standing as the market’s global leader. In fact, the administration isn’t even waiting for lawmakers to finish their work.

Trump, senior administration officials and top financial regulators are meeting at the White House this week with representatives of leading crypto exchanges and payment networks as well as traditional securities and commodities exchanges to discuss regulatory structures.

And the Trump Treasury Department rolled out proposed regulations on Monday to quickly implement last year’s crypto law that set up a framework for regulating payment stablecoins.

“This break is giving staff and senators more time to negotiate,” said Summer Mersinger, CEO of the Blockchain Association. “I’m feeling pretty good about passage, when this comes up on the 15th. They’re really close.”

‘50-50’ chance

That feeling is not universal among crypto advocates, as the number of legislative days dwindle for the Senate to get to passage and for the House to act on the latest version of the bill.

“Time is absolutely our enemy,” said Ryne Saxe, CEO of Eco, a firm that provides stablecoins trading infrastructure. “I feel like it’s 50-50 that it gets done this year.”

Mark Hays, associate director for crypto and fintech at Americans for Financial Reform and Demand Progress, is an opponent of the bill. The delay is both good and bad for his side, he said.

“It signals a more difficult path [for the bill], but the door is left open for some sort of Hail Mary passage when the Senate returns,” Hays said.

Whether the Senate can overcome the 60-vote threshold for a filibuster will depend on how many crypto-leaning Democrats back the bill, particularly when some Republicans are indicating they may not support it.

Two Democrats who voted for the bill in a May Senate Banking Committee markup — Sens. Ruben Gallego of Arizona and Angela Alsobrooks of Maryland — said that they were not committed to supporting the bill on the floor without stronger ethics language to prevent self-dealing by top policymakers.

Gallego and Sen. Thom Tillis, R-N.C., drafted a compromise that they sent to the White House before the Senate recess. It would give state attorneys general the power to enforce crypto prohibitions for public officials and force Trump to divest his crypto holdings, Gallego said.

The break until September “may give [the White House] time to accept some good reforms, not just on ethics but other portions of the … bill that are still outstanding,” Gallego said in an interview before the recess.

But Americans for Financial Reform and several other consumer and democracy organizations are concerned that the ethics language hasn’t been released. They sent an Aug. 12 letter to Gallego calling for the release of the proposal.

They said that expanding state enforcement authority or requiring divestiture doesn’t get to the heart of the problem.

“It is whether it actually cuts off the principal ways in which covered officials and their immediate families can profit from cryptocurrency ventures affected by those officials’ governmental actions,” the groups wrote.

A spokesperson for Gallego did not immediately respond to a request for comment.

But a regulatory move by Treasury’s Office of the Comptroller of the Currency last week didn’t do any favors for efforts to strike an ethics deal. The OCC gave conditional approval to a bank charter for World Liberty Financial, the crypto firm owned by the Trump family that contributed substantially to Trump’s $1.4 billion in crypto-related income last year.

The move prompted Senate Banking Committee ranking member Elizabeth Warren, D-Mass., Gallego and other Banking panel Democrats to release a draft bill that would prohibit presidents from owning or controlling banks.

Banks fight back

Another sticking point is a provision that would prohibit crypto exchanges from offering interest to consumers for holding stablecoins but would permit them to offer rewards for using the tokens in transactions and other activities.

Alsobrooks and Tillis agreed to compromise language in May. The banking industry continues to fight the provision, saying it would not do enough to prevent the flight of deposits from traditional banks to the digital token and potentially destabilize the banking system.

Some Republicans — including Sens. Jerry Moran of Kansas and Mike Rounds of South Dakota — have said they won’t vote for the bill in its current form because of concerns about the yield provisions, among other aspects of the bill.

The re-emergence of yield as an issue “was a surprise to me,” Saxe said. He said it suggests the crypto industry hasn’t yet done a good enough job educating lawmakers on the issue.

“The provision in the bill is not that favorable to crypto,” Saxe said.

Saxe said the yield section makes it harder for crypto to offer stablecoin accounts “that are always earning” until the tokens are spent.

The banking industry continues to push for changes that would tweak language in the provision to prevent stablecoins rewards that are “substantially similar” to traditional deposits.

“We’re encouraged that a growing number of senators now recognize that lending and economic activity will be affected if Congress doesn’t tighten the language around stablecoin rewards,” American Bankers Association Chairman Kenneth Kelly said in a statement. “Throughout the recess, ABA members will continue to share their perspective with lawmakers and the modest word changes that would address this issue.”

The crypto industry group Stand With Crypto also is trying to get in front of senators over the recess.

The group’s 3 million supporters “will be mobilizing in their communities during August recess to ensure their senators understand the urgency and necessity of enacting a fair, transparent legal framework that creates a financial system benefiting every American,” Stand With Crypto Executive Director Mason Lynaugh said in a statement.

The Blockchain Association has set up a tool on its website that has enabled members to send thousands of “unique letters” to lawmakers, Mersinger said.

“I’m excited for Sept. 15,” Mersinger said. “I think we’re going to be in a good place.”