Trump regulators forge ahead with crypto rules amid Senate holdups

A key financial regulator is moving forward with rules for the cryptocurrency industry that would tackle a key legal issue — whether their tokens will be considered securities and fall under the Securities and Exchange Commission (SEC).

The SEC issued guidance last week that would help the industry know what will fall under its jurisdiction and what will fall under the Commodity Futures Trading Commission (CFTC), a question that has bedeviled the nascent industry. 

The moves suggest regulators are not waiting on separate legislation being negotiated in the Senate to come up with their own rules for an increasingly important financial industry. Senators are working on a bill that would set down law on oversight for how the SEC and CFTC would govern cryptocurrency, referred to as market structure legislation.

Ian Katz, managing partner at Capital Alpha, suggested regulators may see little reason to hold off, especially given the lengthy process of agency rulemaking. 

“They’re not completely putting the brakes on, waiting for legislation,” he told The Hill.

The SEC’s guidance, released in coordination with the CFTC, broke down digital assets into five categories — digital commodities, digital collectibles, digital tools, stablecoins and digital securities.

By and large, the first four categories are not considered securities, with digital securities the only one that falls firmly under the SEC’s jurisdiction. However, the guidance notes that the agency will oversee some nonsecurity crypto assets in particular cases.

It aims to resolve a long-standing frustration within the industry, which has complained that there is a lack of clarity on when digital assets are considered securities or commodities.

This became a particular point of contention during the Biden administration, under which crypto firms accused former SEC Chair Gary Gensler of failing to offer clear rules for the industry while instead relying on enforcement actions.

“For over a decade, market participants have operated without clear guidance on the fundamental question — does a crypto asset implicate federal securities laws?” SEC Chair Paul Atkins said at the DC Blockchain Summit last week. “So today, I’m pleased to announce that the SEC’s persistent failure to provide clarity on this question is over.”

Atkins also teased a broader crypto framework featuring a startup exemption, fundraising exemption and a safe harbor for crypto assets that no longer fall under securities law.

“The SEC and CFTC’s joint interpretation brings an important level of assurance that the market has been waiting for, even as the future of the CLARITY Act itself remains uncertain,” David Carlisle, vice president of policy and regulatory affairs at the blockchain analytics firm Elliptic, said in a statement.

The CLARITY Act is the House’s take on market structure legislation, which the lower chamber passed last July. But the Senate has opted to draft its own version of the bill, a complicated endeavor that involves two separate committees and has dragged on for months.

The Senate Agriculture Committee advanced its portion of the bill in late January without Democratic support, while the Senate Banking Committee canceled its own January markup at the last minute after losing the support of Coinbase, a key industry player.

“I thought we’d be doing a victory lap by now on passage of the CLARITY Act or market structure,” Sen. Cynthia Lummis (R-Wyo.) said at the summit. 

One of the major holdups on the legislation is stablecoin rewards. After the GENIUS Act was signed into law last year, the banking industry began raising concerns that the measure left open a loophole.

The law banned stablecoin issuers from offering interest or yield to customers for simply holding the digital tokens. However, the banks argue that crypto firms can still offer rewards through third parties and have pushed for additional restrictions in the market structure bill.

The crypto industry contends that such rewards are needed to effectively compete in the payment space.

Despite several meetings at the White House between the two sides, no deal emerged. President Trump jumped into the debate in early March, taking aim at the banking industry.

“The Genius Act is being threatened and undermined by the Banks, and that is unacceptable — We are not going to allow it,” he wrote in a post on Truth Social. “The U.S. needs to get Market Structure done, ASAP.”

Politico reported Friday that senators and the White House had reached a tentative agreement, but no details were released on the potential deal.

Senators have been signaling optimism about a deal in recent days. Lummis said last week that lawmakers think they have a compromise on the rewards issue and are aiming for an April markup in the Senate Banking Committee.

“We’re going into April and still negotiating,” she said. “But the good news is we are so close. And I know I’ve been saying that for a long time, but we are so close this time.”

Senate Banking Chair Tim Scott (R-S.C.) also said he hoped to have the “first proposal” on stablecoin rewards in his hands last week.

However, the path forward for the legislation is murky, even if it manages to advance out of the Senate Banking Committee next month. 

Lawmakers would still need to combine the two separate bills from the Senate Banking and Agriculture panels before attempting to clear the Senate floor, an endeavor that would require Democratic support to reach the necessary 60-vote threshold. 

Crypto-friendly Democrats who have been negotiating with their GOP colleagues have not signed on to the latest version of either bill. After clearing the Senate, the legislation would also have to be reconciled with the House’s CLARITY Act.

All of this would need to get done in a compressed timeline, as the politics surrounding the midterm elections limit the feasibility of moving legislation in the latter half of the year.

“It’s going to be harder between now and Election Day. It just is,” Sen. Steve Daines (R-Mont.) said at the summit. “There’ll be a window during the lame duck that sometimes is very productive. … But it’s been hard to get the market structure piece done.”

Sen. Bernie Moreno (R-Ohio) similarly warned, “If we don’t get the CLARITY Act passed by May, digital asset legislation will not pass for the foreseeable future.”

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