A proposed bill aimed at establishing clear regulations for the cryptocurrency sector is facing uncertainty in the Senate after bipartisan talks faltered.
The Cryptocurrency Market Structure Bill seeks to clarify which financial watchdogs will govern various aspects of the industry. Initially, it seemed to make some progress, but everything came to a halt this month when leaked Democratic proposals ignited significant backlash from the industry, halting discussions between Republicans and crypto-friendly Democrats.
With concerns about a government shutdown dominating Capitol Hill, negotiations have stalled, putting the bill’s chances of passing this year in jeopardy.
Senate Democrats and Republicans are planning separate meetings with cryptocurrency executives on Wednesday, signaling an attempt to revive the discussions.
“There are some very strong advocates working hard to get this done,” Kristin Smith, director of the Solana Policy Institute, mentioned to reporters last week. “I’m not sure if the rest of Congress is fully on board, so it’s likely to be a tough battle in the near term.”
Lawmakers have grappled with how to regulate virtual currencies for nearly a decade, as they often blur the lines between different financial products overseen by various authorities.
The cryptocurrency sector has been calling for legislation that clearly separates the oversight roles of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
In July, the House of Representatives passed a market structure bill known as the Digital Asset Market Transparency Act. Since then, the Senate has been trying to advance its own version.
After the House passage, Republicans on the Senate Banking Committee shared a draft of their part of the transparency bill. In early September, a group of crypto-friendly Senate Democrats put forth a framework addressing crucial issues, reigniting negotiations.
However, discussions came to a halt earlier this month when Senate Democrats submitted what was termed a “starting point” on decentralized finance regulations. This proposal, once leaked, faced quick criticism from the crypto sector.
“The disappointing proposal from Senate Democrats would virtually ban decentralized finance and wallet development within the U.S., which is neither practical nor aligned with American innovation,” Blockchain Association CEO Summer Marsinger stated.
She also noted that it would be impossible to adhere to the proposal while promoting responsible development elsewhere.
The leak exacerbated tensions related to setting a price increase date for the bill. Republican senators initially aimed to introduce it to the Senate Banking Committee in September but requested a deadline agreement from Democrats.
Following the decentralized finance proposal from Senate Democrats, Republicans indicated they wouldn’t continue talks until a final date is established, according to a Democratic official.
“They asked for documents, and we provided them,” Jacques Petit, communications director for Sen. Ruben Gallego (D-Ariz.), stated. “Then they leaked our proposal and seemed surprised to find that our parties had policy differences.”
Gallego is part of a group of twelve crypto-friendly Democrats, including Senators Kirsten Gillibrand, Mark Warner, and Cory Booker, who have been involved in the negotiations.
“Requesting to set a markup date before agreeing on text is like scheduling a wedding before a first date,” he emphasized. “It’s nonsense. But this is likely the best distraction from the fact that the caucus isn’t unified on this issue.”
A spokesperson for Senate Banking Committee Chairman Tim Scott, R.S.C., mentioned that he and other Republicans postponed the rate hike scheduled for September 30 to provide Democrats time to engage substantively with the bill’s text.
“Despite repeated requests for feedback from Democrats, they haven’t provided formal responses or agreed on a markup date,” the spokesperson added.
The current deadlock raises questions about Congress’s ability to swiftly pass market structure legislation. This bill is considerably more complex than the stablecoin legislation that cleared both houses earlier this year, focusing solely on one sector of the industry.
“This confirms our belief that Senate action on the market structure bill is not imminent,” said Jarrett Syberg, managing director and monetary policy analyst at TD Securities. “The limited time left in the Senate makes it tough to see how misunderstandings can be resolved by year-end.”
Smith remarked that the discussion on market structure began much later than on stablecoins, and numerous unresolved issues remain between Republicans and Democrats, the Banking Committee and the Agriculture Committee, the House and Senate, as well as between the crypto industry and traditional finance.
She also noted that President Trump’s increasing involvement in the cryptocurrency sector complicates matters.
“I wish this hadn’t happened,” Smith expressed. “A strong framework would be beneficial. But I’m unsure if Congress will be active in the short term.”
She pointed out that recent SEC and CFTC efforts to provide guidance lessen the urgency of the situation. The industry had previously criticized the SEC under the current administration for a lack of clarity and enforcement.
During Trump’s presidency, both agencies initiated efforts focused on cryptocurrencies, responding to a report from the President’s Digital Assets Task Force that advocated for leveraging existing authorities to enable digital asset trading federally.
Trump might push for similar initiatives, as he did with the stablecoin bill earlier this year, according to Smith.
“If Trump really wants this and decides to broker a deal, that could change the game,” she stated. However, she also added that he seems stronger after recent successes and might not be personally involved before the year ends.
Some analysts suggest that the market structure legislation might need to wait for the midterm elections, as senators often have more motivation to act later rather than sooner.
Still, new developments are emerging. Senate Democrats are set to meet with crypto executives on Wednesday, as mentioned by Democratic staffers.
“I want to hear from the executives that this is a bipartisan bill, and we cannot rush it. We shouldn’t rush it, nor should the industry,” Gallego remarked to reporters on Tuesday.
Another meeting with Senate Republicans is also confirmed for the same day.
As the two sides remain in disagreement, Marsinger urged them to “stay at the table.” She added, “Let’s improve, not retreat. Together, we can safeguard consumers, combat illicit finance, and lead in open, secure financial technology.”
