Deepening divisions are being experienced within the crypto industry over whether to accept imperfect legislation now or risk tougher rules later.
Criticism was leveled by the executive director of the President’s Council of Advisors on Digital Assets on Tuesday against Coinbase’s recent withdrawal of support for the Senate’s crypto market structure bill. This serves as the latest indication that lawmakers are growing weary of industry players weighing their near-term commercial exposure.
“‘No bill is better than a bad bill,’” was the opening statement shared by Patrick Witt in his tweet, referencing the remarks made by Coinbase CEO Brian Armstrong when the exchange withdrew its backing for the CLARITY Act. Witt noted the privilege of being able to voice such sentiments, attributing the opportunity to the victory of President Trump and the pro-crypto administration he has assembled.
On January 14, the exchange’s backing for the bill was publicly withdrawn by Armstrong alongside other industry participants shortly before a scheduled markup, citing concerns about provisions on stablecoin rewards, tokenized equities, and regulatory scope.
In his tweet, it was stated by Witt that delaying legislation is unrealistic, and a warning was issued that rejecting imperfect rules now risks far harsher regulation under the Democrats down the road.
“Do we take advantage of the opportunity to pass a bill now, with a pro-crypto president, control of Congress, excellent regulators at the SEC and CFTC to write the rules, and a healthy industry? Or do we fumble the ball and allow Dems to write punitive legislation in the wake of a future financial crisis à la Dodd-Frank?”
he wrote
Industry Divided Over Crypto Market Structure Bill
Witt’s remarks follow those of venture capital firm Andreessen Horowitz, where a counterargument was presented last week by top crypto executive Miles Jennings. While acknowledging that the bill “isn’t perfect,” Jennings stated that an “open and decentralized future” could be created by the legislation, which would be “more resilient to corporate extraction, government censorship, and algorithmic distortions.”
Opposition to the crypto market structure bill in its current form is centered by Coinbase on Democratic-backed and bank industry-led changes that could restrict stablecoin yield. Such a move would potentially involve customer rewards and balance-related earnings being classified as regulated interest or lending activity.
It is stated by industry observers that risk stems from ambiguity in how different forms of yield would be defined under the bill.
“The key changes are those that make it difficult to distinguish between issuer-paid interest and activity-based rewards, particularly where liquidity provision or transaction-driven incentives risk being treated as prohibited yield,
Jakob Kronbichler, CEO of on-chain credit marketplace Clearpool, told .
“Uncertainty for platforms offering compliant reward models and for institutions relying on on-chain liquidity is created by such an ambiguity,” Kronbichler added.
When asked about timing, it was stated by Kronbichler that a compromised bill “is more risky than waiting.”
“Certainty only works if the rules clearly support supervised, market-based activity, he said. “Locking in restrictive definitions now creates permanent structural flaws that are much harder to unwind than the current regulatory ambiguity.”
In a report released on Tuesday, a warning was issued by the Office of Inspector General that exceptional strain would be placed on the operations of the CFTC—the primary agency tasked with digital spot market oversight—should the bill be passed.
Nevertheless, it is expected by Chris Loeffler, CEO of the Nasdaq-listed digital asset management platform Caliber, that regulators will “focus on the storefront, not the code,” according to his comments. This affects “frontends, custodians, and any U.S.-facing operator that lists or promotes contracts,” he added.
A likely outcome could see “registration, clear disclosures, basic limits, and strong anti-fraud enforcement” being prioritized on the CFTC’s part, instead of just “trying to regulate open-source software directly,” Loeffler said.
The manner in which officials in Washington intend to reach a compromise on fundamental components of the legislation remains uncertain. Nonetheless, an optimistic tone was maintained by Witt on Tuesday.
“There will be a crypto market structure bill—it’s a question of when, not if,” he tweeted. “Assuming a multi-trillion dollar industry will continue to operate indefinitely without a comprehensive regulatory framework is pure fantasy.”
