By Hannah Lang and Carlos Méndez Jan 15 (Reuters) – A U.S. Senate committee postponed a long-awaited Thursday debate on a landmark bill that would create a regulatory framework for cryptocurrencies hours after the CEO of Coinbase said the crypto giant would not support the measure, raising uncertainty about its future. The legislation, unveiled on Monday by the Senate Banking Committee, would define when crypto tokens are securities, commodities or fall into other categories. It would also clarify the jurisdiction of the U.S. Securities and Exchange Commission over the sector. The bill is the culmination of a years-long lobbying campaign led by Coinbase and other big crypto companies which have argued the industry needs fresh regulation to provide legal clarity that would ultimately promote digital asset adoption. The CEO of Coinbase, however, now says he is bothered by certain aspects of the latest effort to craft new rules. Former President Joe Biden's regulators alleged many crypto companies were flouting U.S. securities laws and other rules, but the industry says existing rules are not appropriate for digital assets. The Senate Banking Committee was scheduled to debate amendments to the bill, dubbed the Clarity Act, on Thursday. But it canceled that so-called markup late on Wednesday, after Coinbase CEO Brian Armstrong said on X that the bill had "too many issues" and that the company could not support it, in a major blow for the legislation. Armstrong said the bill would erode the authority of the U.S. Commodity Futures Trading Commission, the industry's preferred regulator, and "kill" crypto companies' ability to offer rewards on customer holdings of dollar-pegged tokens known as stablecoins, among other complaints. "We'd rather have no bill than a bad bill," he wrote, adding, however, that he was "quite optimistic that we will get to the right outcome with continued effort." Coinbase donated millions of dollars to political action committees aimed at getting pro-crypto candidates elected in 2024, and has been a key stakeholder in the negotiations. There were disagreements among Republicans about the bill's stablecoin provisions, according to two people with knowledge of the discussions, with one adding Armstrong's objections pushed those concerns to the forefront. Senators involved with spearheading the bill then became concerned that it wouldn't get enough votes to advance out of the committee at the conclusion of the markup, the second source said. In order to gain approval, the bill would need support from at least seven Democrats in the full Senate. Some Democrats have expressed concerns that the measure does not include provisions to prevent political officials from profiting from crypto ventures. "I’ve spoken with leaders across the crypto industry, the financial sector, and my Democratic and Republican colleagues, and everyone remains at the table working in good faith,” said Senate Banking Committee Chairman Tim Scott, a South Carolina Republican, in a statement. Scott's office did not immediately respond to a request for further comment. The House of Representatives passed its version of the Clarity Act in July. Among the Senate bill's most contentious provisions is what banks say is a loophole created by last year's stablecoin legislation, which allows intermediaries, such as crypto exchanges, to pay interest on customer stablecoin holdings. Banks say this would lead to a flight of deposits – the primary source of funding for most banks – from the banking system, potentially threatening financial stability. Crypto companies have fought back, arguing that barring them from paying interest on stablecoins would be anticompetitive. The Senate bill prohibits crypto companies from paying interest to consumers for holding a stablecoin, but allows them to pay rewards or incentives to customers for certain activities, such as sending a payment or participating in a loyalty program. "On complex issues like digital asset market structure, moments like this can be a healthy part of policymaking, allowing time for additional deliberation," Summer Mersinger, the CEO of crypto industry trade group the Blockchain Association, which counts Coinbase as a member, said in a statement. (Reporting by Hannah Lang in New York, Carlos Méndez in Mexico City and Abu Sultan in Bengaluru; Editing by Matthew Lewis and Nick Zieminski)
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