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(Bloomberg) — Senators from both parties blocked a landmark digital asset market structure bill in a procedural vote Tuesday, sending cryptocurrency stocks tumbling after a major setback for industry.
The long-stalled legislation sought by crypto firms would hand the Commodity Futures Trading Commission the primary authority to regulate the digital assets industry. It needed 60 votes to advance and failed on a vote of 49-50, with Democrats citing continued concerns over ethics provisions meant to address President Donald Trump’s crypto business interests.
A few Republicans joined with Democrats in opposing the measure, including Susan Collins of Maine and Josh Hawley of Missouri. Collins is in a tough fight for reelection, while Hawley has been a crypto skeptic. Even pro-crypto Democrats like New York’s Kirsten Gillibrand ultimately voted against moving forward with the bill.
Shares of exchange Coinbase Global Inc. extended a decline to as much as 12%, while stablecoin issuer Circle Internet Group Inc. fell 13%. Bitcoin, the largest cryptocurrency, dropped as much as 5.3% to below $75,000 after the bill failed to get the requisite votes.
The defeat is a major blow for crypto industry players who have invested hundreds of millions of dollars and years of effort in securing favorable, durable rules from Congress, and comes less than two months before the midterm elections.
Senate GOP leadersreleasedan updated version of the so-called Clarity Act late on Sunday night with changes that included new measures to expand state attorneys’ general ability to enforce the ethics provisions. That proposal also added provisions to further limit crypto companies from offering rewards or interest to stablecoin users.
Both issues have been among the most significant hurdles to passing the bill before lawmakers turn their eyes to the midterm elections in November.
The bill included some ethical guardrails for the president and other elected officials holding cryptocurrencies, which has been a major point of contention spurred in part by Trump’s $1.4 billion crypto windfall, but Democrats said that provision didn’t go far enough.
“It doesn’t do enough on ethics,” New Jersey Democrat Cory Booker told reporters on Tuesday.
The latest version of the bill also added a “circuit-breaker” for the Treasury Department to prohibit crypto firms from offering rewards, interest or yield to stablecoin users. That issue has been at the center of a fight between the digital asset industry and banks, which have been caughtflat-footed repeatedlyon crypto policy over the past year.
On Monday, banking trade groups told Senate leaders that a “circuit breaker that activates only after substantial deposit flight has already occurred is not a safeguard at all,” according to a joint letter. Community lenders have also warned the measure could result in significant deposit flight out of local banks into crypto firms.
The Trump administration and Republican senators backing the bill have argued the measure would put new consumer safeguards in place. Those include making it clear that the CFTC can directly oversee digital asset exchanges and spot crypto trading, which would bring with it registration requirements and other measures to more directly regulate the industry.
Crypto-friendly regulators have also noted they areready to take actionif the legislation fails to pass Congress. CFTC Chairman Michael Selig said last month the agency is weighing a number of potential crypto rules, but is waiting to see what happens with the Clarity Act.
“Institutions can operate under stringent rules; what is much harder to build around is uncertainty,” said Ayesha Kiani, chief operating officer at Monarq Asset Management. “The failure to advance the Clarity Act prolongs a regulatory gap that has real consequences for where companies build, where capital is deployed, and how quickly institutional adoption moves in the US.”
Source: www.wealthmanagement.com