A few months ago, in our client alert titled “Mr. Bitcoin Goes to Washington,” we discussed the cryptocurrency industry’s significant political resurgence in the wake of the 2024 election. We not only forecasted a more crypto-friendly regulatory environment due to likely changes in leadership at the Securities and Exchange Commission (SEC) and Department of the Treasury, but also anticipated the industry's aggressive push for legislative action would continue and potentially lead to a favorable regulatory framework.
Today, those predictions are beginning to materialize, marking an inflection point for the cryptocurrency industry’s political influence. Even as we await the Senate confirmation of Paul Atkins as SEC chair, the Commission has already signaled a remarkable shift away from its previous aggressive enforcement stance, exhibited by dismissing its long-standing case against Coinbase, pausing litigation against Binance, and informing other key industry players that it will not be pursuing further investigation.
All the while, legislative efforts in Washington are gaining traction related to stablecoins used in payments – even amidst a legislative environment where much of the attention on Capitol Hill is focused on the budget reconciliation process. This alert highlights some of those key developments and what the current debate over stablecoin legislation, long considered the “low hanging fruit” of cryptocurrency regulation, might portend for the future. It also describes the key dynamics to watch as the debate over the legislative framework for digital assets continues to play out.
The Progress to Date
True to expectations, congressional Republicans have begun the 119th Congress by advancing relatively manageable crypto bills – a bill to repeal the controversial DeFi broker rule passed in the House and the Senate on a bipartisan basis – before diving into the altogether more difficult task of creating a regulatory framework for cryptocurrency generally. These efforts have been spurred on by a collaborative relationship between the Administration and Republican-controlled Congress, with the White House revealing its serious commitment to redefining this industry through CryptoCzar David Sacks’ initial leadership press conference a month ago.
Early in the legislative session, Congress’ focus has centered on proposals to regulate stablecoins, an area that has traditionally garnered bipartisan support.
- The Senate Banking Committee, led by Sen. Tim Scott (R-SC), is moving forward with the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act), which would create legislation for stablecoin payments and issuance. This bill would clarify the broad licensing and regulatory expectations for stablecoins, ensuring that they are only issued by “permitted payment stablecoin issuer[s]” subject to a similar licensing and supervisory framework at the federal or state level. Larger stablecoin issuers (those with over $10 billion in payment stablecoins) would, by definition, be regulated by federal authorities, chiefly the Office of the Comptroller of the Currency (OCC), while smaller issuers can opt to be covered by a state’s regulatory framework, provided the state’s rules align with federal standards – thus limiting sometimes significant variation in state regulatory regimes. These universal standards include a requirement that reserves are backed on at least a 1:1 basis by US dollars or other highly liquid assets and that reserves are segregated from operational funds. Additionally, stablecoin issuers must provide monthly liquidity reports and undergo regular audits. With strong bipartisan support from within the Committee – passing by a vote of 18-6 out of Senate Banking last week with support from five Democratic members – it seems likely that this bill, or some version thereof, will garner the support of both chambers.
- In the House, Financial Services Chair French Hill (AR-02) and Digital Assets, Financial Technology, and Artificial Intelligence Subcommittee Chairman Bryan Steil (WI-01) have introduced their own version of stablecoin legislation, the STABLE Act (The Stablecoin Transparency and Accountability for a Better Ledger Economy Act), which shares key features with the GENIUS Act, including a federally enforced licensing and regulatory framework for stablecoin investment under the OCC and a clear demarcation that stablecoins are not securities. However, the STABLE Act bears some key regulatory differences from the GENIUS Act: for instance, it does not mandate federal regulation at the $10 billion market cap, permitting any issuer to be regulated by a state regime. Furthermore, while the GENIUS Act requires the Treasury Department to prepare a written study on “endogenously collateralized stablecoins,” that rely on the value of another digital asset to maintain the fixed price, the STABLE Act simply imposes a two-year moratorium on their issuance. The STABLE Act is still in the early stages, with the Committee expected to markup the legislation on April 2.
- Senator Cynthia Lummis (R-WY) has reintroduced the BITCOIN Act in Congress, which aims to create a Strategic Bitcoin Reserve—building on the President’s recent Executive Order to explore the potential of establishing a crypto reserve, building off assets the US government has already seized in criminal or civil forfeiture cases. The proposed legislation would authorize the US Treasury to purchase one million Bitcoins over a five-year period – a vast purchase that would amount to roughly 5% of outstanding tokens and $90 billion at current market prices. Additionally, it would allow states to voluntarily establish their own bitcoin reserves in separate accounts, which a number of states are actively discussing. While it remains uncertain how much support the bill will gain, particularly given conflict of interest concerns generated by the strategic reserve, Lummis’s support for the President’s project has lent serious institutional support to the effort and kept the issue at the forefront of Congressional discussions.
Earlier this month, each of these endeavors were subject to robust discussion in the House Financial Services hearing entitled “Examining a Federal Framework for Payment Stablecoins and Consequences of a US Central Bank Digital Currency,” as part of Congressional Republicans’ ongoing push to promote legislation supporting and expanding the use of stablecoins. The hearing was instructive, not just for increased details on the bills at hand, but for what it revealed about the potential for an ongoing bipartisan consensus moving forward.
What’s Next: Thoughts on The Continuing Debate
Despite the promise of an emerging bipartisan consensus on stablecoins and cryptocurrency more broadly in 2024, the House Financial Services hearing highlighted the deep fissures that still exist within Congress regarding the regulation of cryptocurrencies – divides that will no doubt grow more pronounced as even more controversial cryptocurrency bills are picked up and partisanship continues to divide Washington.
- Central Bank Digital Currencies (CBDCs) seem unlikely to garner sufficient support. In many ways, the House hearing was a dueling rally on CBDCs. Republicans on the Committee continually highlighted the surveillance risks associated with issuing the “digital dollar,” which one representative described as “one of the greatest threats to civil liberties in our lifetime.” These statements reinforced the concerns highlighted by the White House in its recent Executive Order preventing federal agencies from issuing a CBDC. House Majority Whip Tom Emmer (R-MN) appeared at the hearing to promote the CBDC Anti-Surveillance State Act, which would prohibit the US Federal Reserve from issuing a CBDC, and Chair Hill seemed to close the door on a CBDC for the foreseeable future, stating “a CBDC would concentrate financial power within the federal government, restrict consumer choice, and undermine the innovation that has made US financial markets the strongest in the world.” While Democrats pushed back on this framing, highlighting the potential stability and transparency that would come from a centrally issued digital dollar, barring substantial changes in the proposals and congressional sentiment, there does not appear to be any realistic path forward for a US CBDC anytime soon.
- With Trump in office and industry opponents largely sidelined, crypto is seizing its moment but has not backed away from its calls for clear rules of the road. The regulatory landscape for stablecoins has shifted dramatically, and industry leaders are stepping in to fill the void left by former SEC Chair Gary Gensler and former Senate Banking Chair Sherrod Brown (D-OH). With fewer political roadblocks, crypto firms now find their political influence matching other industries in Washington but still appear willing to accept, and even push for, clearly defined federal oversight, even beyond what Republican legislators have set forward in recent legislation. At the House Financial Services hearing, industry representatives made their priorities clear: stablecoins are key to modernizing finance, but clear rules are needed. Paxos’ Charles Cascarilla called stablecoins essential to US financial dominance but pushed for updates to the STABLE Act, including federal oversight for state-regulated issuers. Stripe’s Patrick Collison emphasized clarity, interoperability, and innovation, while Carole House of the Atlantic Council warned that stablecoins need strong Anti-Money Laundering and Know Your Customer safeguards in place to protect consumers. Bottom line: with a more crypto-friendly administration, established firms have a significant opportunity to shape stablecoin regulation but have not fully shied away from their previous position, repeated throughout the Biden years, that the absence of regulation is a greater threat to the industry than overregulation at this point.
- Many key House Democrats remain deeply skeptical of current legislation and show little signs of softening their cryptocurrency-skeptical message in the minority – portending a potentially short window for industry to make its legislative mark. In contrast to relative Republican unification on promoting industry-friendly legislation, Democrats have yet to find their footing on approach or message. During the House hearing, Ranking Member Maxine Waters (D-Calif.) argued that the STABLE Act “tears down the wall that was used to separate banking from commerce” and warned, along with other Democrats, that the legislation would provide a handout to supporters of the President from the tech sector. Others, such as Representatives Joyce Beatty (D-Ohio) and Emanuel Cleaver (D-Mo.), highlighted the risks of gaps in Know Your Customer requirements and money laundering enforcement associated with unregulated currencies, which, in their view, remain unaddressed by the Republican legislation. This approach stands in stark contrast to the Senate, where the GENIUS Act passed out of Senate Banking with half of the Democrats on the Committee supporting the bill (Lisa Rochester (D-DE), Angela Alsobrooks (D-MD), Andy Kim (D-NJ), Ruben Gallego (D-AZ), and Mark Warner (D-VA)) – over the notable and extended objections of Ranking Member Elizabeth Warren (D-MA). The continued divide between the Waters-Warren wing of the Democratic Party and other, more crypto-progressive Democrats on digital asset regulation bears monitoring, particularly if the Democrats pick up the House with a significant majority in 2026. Industry’s window to break the legislative stalemate that has characterized the last half decade might last another year – at best.
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