Crypto bill in limbo as stakeholders ramp up recess efforts

“It signals a more difficult path [for the bill], but the door is left open for some sort of Hail Mary passage when the Senate returns,” Hays said.

Whether the Senate can overcome the 60-vote threshold for a filibuster will depend on how many crypto-leaning Democrats back the bill, particularly when some Republicans are indicating they may not support it.

Two Democrats who voted for the bill in a May Senate Banking Committee markup — Sens. Ruben Gallego of Arizona and Angela Alsobrooks of Maryland — said that they were not committed to supporting the bill on the floor without stronger ethics language to prevent self-dealing by top policymakers.

Gallego and Sen. Thom Tillis, R-N.C., drafted a compromise that they sent to the White House before the Senate recess. It would give state attorneys general the power to enforce crypto prohibitions for public officials and force Trump to divest his crypto holdings, Gallego said.

The break until September “may give [the White House] time to accept some good reforms, not just on ethics but other portions of the … bill that are still outstanding,” Gallego said in an interview before the recess.

But Americans for Financial Reform and several other consumer and democracy organizations are concerned that the ethics language hasn’t been released. They sent an Aug. 12 letter to Gallego calling for the release of the proposal.

They said that expanding state enforcement authority or requiring divestiture doesn’t get to the heart of the problem.

“It is whether it actually cuts off the principal ways in which covered officials and their immediate families can profit from cryptocurrency ventures affected by those officials’ governmental actions,” the groups wrote.

A spokesperson for Gallego did not immediately respond to a request for comment.

But a regulatory move by Treasury’s Office of the Comptroller of the Currency last week didn’t do any favors for efforts to strike an ethics deal. The OCC gave conditional approval to a bank charter for World Liberty Financial, the crypto firm owned by the Trump family that contributed substantially to Trump’s $1.4 billion in crypto-related income last year.

The move prompted Senate Banking Committee ranking member Elizabeth Warren, D-Mass., Gallego and other Banking panel Democrats to release a draft bill that would prohibit presidents from owning or controlling banks.

Banks fight back

Another sticking point is a provision that would prohibit crypto exchanges from offering interest to consumers for holding stablecoins but would permit them to offer rewards for using the tokens in transactions and other activities.

Alsobrooks and Tillis agreed to compromise language in May. The banking industry continues to fight the provision, saying it would not do enough to prevent the flight of deposits from traditional banks to the digital token and potentially destabilize the banking system.

Some Republicans — including Sens. Jerry Moran of Kansas and Mike Rounds of South Dakota — have said they won’t vote for the bill in its current form because of concerns about the yield provisions, among other aspects of the bill.

The re-emergence of yield as an issue “was a surprise to me,” Saxe said. He said it suggests the crypto industry hasn’t yet done a good enough job educating lawmakers on the issue.

“The provision in the bill is not that favorable to crypto,” Saxe said.

Saxe said the yield section makes it harder for crypto to offer stablecoin accounts “that are always earning” until the tokens are spent.

The banking industry continues to push for changes that would tweak language in the provision to prevent stablecoins rewards that are “substantially similar” to traditional deposits.

“We’re encouraged that a growing number of senators now recognize that lending and economic activity will be affected if Congress doesn’t tighten the language around stablecoin rewards,” American Bankers Association Chairman Kenneth Kelly said in a statement. “Throughout the recess, ABA members will continue to share their perspective with lawmakers and the modest word changes that would address this issue.”

The crypto industry group Stand With Crypto also is trying to get in front of senators over the recess.

The group’s 3 million supporters “will be mobilizing in their communities during August recess to ensure their senators understand the urgency and necessity of enacting a fair, transparent legal framework that creates a financial system benefiting every American,” Stand With Crypto Executive Director Mason Lynaugh said in a statement.

The Blockchain Association has set up a tool on its website that has enabled members to send thousands of “unique letters” to lawmakers, Mersinger said.

“I’m excited for Sept. 15,” Mersinger said. “I think we’re going to be in a good place.”