Key Insights
- The Crypto Market Structure Bill stalled after Coinbase withdrew its support.
- Coinbase is largely concerned about the stablecoin rewards provisions in the bill.
- Odds of the bill passing Congress before 2027 have faded.
The much-anticipated Crypto Market Structure Bill has suffered a major setback. This happened as a result of Coinbase, the biggest crypto exchange in the United States, withdrawing its support. That pushed the Senate Banking Committee to postpone it.
Coinbase Withdraws Support for Crypto Market Structure Bill
The Crypto Market Structure Bill, known as CLARITY, faced a major setback on Thursday. One of its biggest supporters withdrew support.
In a statement, Brian Armstrong cited four main reasons for withdrawing the support. First, he noted that the bill would hurt the DeFi industry by giving government officials unlimited access to accounts. It’s a move that he believes will hurt users’ privacy.
He also noted that the bill would likely ban tokenized securities. These securities have grown rapidly in the past few months, with companies like Ondo and Robinhood offering them.
Data compiled by TokenTerminal shows that tokenized assets are now valued at over $16 billion. With stablecoins included, these assets are now valued at over $327 billion.
Most analysts believe that most assets will be tokenized eventually as the technology advances. This included assets like stocks, real estate, and art.
Armstrong also pointed out that the bill would erode CFTC’s authority. That’s a notable thing since the agency is seen as being more friendly to the crypto industry.
Finally, and most importantly, he pointed to the fact that the bill to kill rewards on stablecoin. It’s a move that would affect one of its fastest-growing businesses.
Banks and credit unions have urged politicians for months not to allow rewards on stablecoins. They are arguing that it would lead to capital flight, a move that would affect the US economy.
Banks have warned that trillions of dollars worth of customer deposits would leave and be converted into stablecoins. As a result, that would affect their balance sheets and the funds that they lend to customers.
The most recent results showed that Coinbase made over $357 million in stablecoin revenue in the third quarter. It’s up sharply from the $246 million it made in the same period a year earlier.
Meanwhile, the Healthy Markets Association urged the Senate to pause the bill and tighten the tokenization language. This association represents institutional investors and several retirement systems.
It warned that, as drafted, the bill would compromise the integrity, efficiency, and stability of US capital markets.
Odds of CLARITY Act Passing Have Fallen
The Senate Banking Committee withdrew the bill temporarily to allow for more negotiations to address the concerns raised.
As a result, Kalshi data shows that the odds that it will pass before 2027 dropped to 49% from 93% in December last year.
The bill faces three more hindrances going forward. First, it faces the challenge of convincing senators to make amendments to accommodate the concerns raised by Coinbase.
Second, the bill needs to get 60 votes in the Senate. It’s a hurdle that may be difficult to overcome if the disagreements between several key parties remain.
Third, the banking lobby is one of the most powerful in Washington, where it funds most politicians. As such, there is a likelihood that it will lobby aggressively to ensure that the stablecoin rewards provisions are removed.
Still, some major players in the industry are upbeat that the legislation will eventually pass. For example, Vlad Tenev is the founder and CEO of Robinhood.
He said passing the bill will be beneficial. It will allow Robinhood to offer staking solutions to American customers. The company does not offer this feature today.
Also, many other companies in the industry have supported the bill. This includes firms like Circle, Kraken, Ripple Labs, Coin Center, and the Crypto Chamber of Commerce.
The CLARITY Act is the second most important legislation to come to Congress after the GENIUS Act, which focused on stablecoins.
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