Lede
Coinbase, a leading US-based cryptocurrency exchange, has officially announced the withdrawal of its support for the Digital Asset Market Clarity Act. The decision follows the release of the legislative text on Jan. 21 and a subsequent review by the company’s leadership. CEO Brian Armstrong has been vocal about the shift, arguing that the bill, in its current form, would cause far more harm than good to the crypto industry. Armstrong expressed a preference for the status quo over the current draft, stating that the organization would rather have no bill at all than a bad bill.
The move marks a significant departure from previous industry efforts to find common ground with federal lawmakers. Armstrong noted that after reviewing the Senate Banking draft text, Coinbase found the proposed version to be materially worse than existing conditions. The exchange is now calling for a better draft that addresses the core issues identified by its legal and executive teams, as the industry continues to seek a stable market structure bill that does not compromise innovation or user protections.
Context
Brian Armstrong’s opposition to the Digital Asset Market Clarity Act is rooted in several specific concerns regarding how the bill would regulate the crypto ecosystem. One of the primary issues highlighted is a “defacto ban” on tokenized equities, which Armstrong believes could stifle the growth of digital asset representations. Additionally, he raised alarms regarding privacy, suggesting that the bill would grant the government “unlimited access” to financial records. This provision is seen as a significant risk to consumer privacy and a departure from standard financial protections.
- Reduces the authority of the Commodity Futures Trading Commission (CFTC).
- Grants more regulatory power to the US Securities and Exchange Commission (SEC).
- Creates sweeping restrictions on decentralized finance (DeFi).
The draft bill also appears to shift the balance of power between federal regulators. Armstrong argued that the current text takes power away from the Commodity Futures Trading Commission and hands more authority to the US Securities and Exchange Commission. This is a point of major concern for the industry, which has often criticized the SEC’s approach to digital asset regulation. Furthermore, Armstrong warned that the proposal would slow innovation by imposing restrictive rules on emerging technologies within the space.
Impact
The legislative proposal could have broad implications for the stablecoin market and traditional financial institutions. Armstrong echoed industry fears that the current draft could “kill rewards” on stablecoins, effectively removing an incentive for users to hold these assets. This provision appears to address concerns raised by banking lobbyists, who fear that stablecoins offering competitive yields could trigger a “deposit flight.” In such a scenario, billions of dollars could be pulled from low-interest bank accounts in favor of digital assets, creating a challenge for traditional banks.
Reactions to Coinbase’s decision have been mixed across the industry. ETF analyst James Seyffart commented that the withdrawal of support is not what the industry wants to see regarding market clarity, emphasizing the ongoing need for a market structure bill. However, other leaders remain hopeful that the legislation can be improved. Ripple CEO Brad Garlinghouse stated that he remains optimistic that the issues can be resolved through the upcoming mark-up process. Garlinghouse believes the bill represents a step toward providing workable frameworks for crypto while continuing to protect consumers, asserting that the success of the bill is tied to the success of the industry.
Outlook
The focus now shifts to the legislative timeline and the potential for amendments. The Senate Committee on Agriculture, Nutrition and Forestry has set Jan. 27 for its markup hearing, providing a formal opportunity for lawmakers to address the criticisms raised by Coinbase and other industry stakeholders. This hearing will take place less than a week after the initial release of the legislative text, indicating a rapid pace for the bill’s progression through committee.
Despite the friction, some figures remain confident that the legislation will move forward. SEC chair Paul Atkins has stated he is “bullish” on the chances of the bill being signed by the President this year. The outcome of the Jan. 27 hearing will be critical in determining whether the draft can be modified to regain the support of major industry players like Coinbase. As the mark-up process begins, the crypto sector will be watching closely to see if lawmakers can find a middle ground that provides the desired clarity without imposing the restrictions that Armstrong and other executives fear will harm the domestic market.
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