Crypto Firms Uplifted by Trump Face Turmoil as US Legislation Stalls

(Bloomberg) -- The exuberance that once filled the cryptocurrency sector during Donald Trump’s initial tenure in office is now giving way to uncertainty, following a significant delay of a pivotal digital-asset bill in the Senate, fueled by intense discussions surrounding the regulation of stablecoins. On Wednesday, the Senate Banking Committee postponed its debate on the bill mere hours after Coinbase Global Inc. withdrew its endorsement of the current version. Among the contentious aspects that Coinbase and other companies are criticizing are restrictions on their capacity to provide yields or incentives on customers’ stablecoin investments. The rising use of stablecoins, which form a core component of the cryptocurrency ecosystem, surged after recent legislative measures were enacted in July. Executives in the crypto space who successfully backed Trump and the stablecoin initiative are now apprehensive that the deadlock on dollar-pegged tokens could hinder the US from establishing a regulatory framework that keeps pace with global markets. Dea Markova, policy director at Fireblocks, a cryptocurrency custody service, expressed concern that this setback could mean that the US remains one of the few major digital asset hubs without a defined capital markets rulebook by 2026. Following the news, Coinbase shares fell by as much as 4%, with Circle Internet Group Inc. and Gemini Space Station Inc. also experiencing declines of approximately 5%. The current proposal indicates a potential ban on yielding stablecoins, though some types of rewards might still be permissible. However, the specifications regarding which rewards could be offered lack clarity, according to Nana Murugesan, a former senior official at Coinbase. Crypto businesses have traditionally incentivized users with yields and rewards to encourage prolonged holding of their digital assets rather than converting them back into fiat currencies. For example, Ethena’s USDe, a dollar-pegged stablecoin, features yield as part of its intrinsic design. Similarly, Coinbase provides rewards to users holding Circle’s USDC stablecoin—mirroring the returns typically associated with conventional savings accounts. According to Ari Redbord, head of global policy and government affairs at TRM Labs, “Stablecoin rewards occupy a crucial space between payments, savings-like actions, and market incentives.” This demonstrates why a specific technical detail has escalated into a major policy dilemma as the bill progresses through discussions. As the debate continues, some executives are concerned that limits on rewards could leave US-regulated crypto firms at a disadvantage. Murugesan noted, “Whenever clarity is lacking, it is often open to interpretation. Any imposed restrictions could disadvantage US companies compared to their offshore counterparts, who may continue offering rewards.” The banking sector has cautioned that yield-bearing stablecoins could divert deposits from conventional lenders. Legislation approved last year permits banks to issue their own stablecoins, prompting several crypto firms to seek bank charters. This law, known as the Genius Act, prohibits stablecoin issuers from offering interest. The abrupt response from Coinbase—one of the contributors to Trump's ballroom project at the White House—also reflects the industry’s growing influence in Washington. Coinbase CEO Brian Armstrong, a Trump supporter, stated in a post on X that he was retracting support for the latest bill language due to “numerous concerns.” This led to a counterstatement from Senator Cynthia Lummis, a committee member, who remarked on X that reactions from crypto firms like this “demonstrate their unpreparedness.” Nonetheless, Michael Bucella, managing partner at Neoclassic Capital, asserted that the bill's delay doesn't signify its demise, expressing confidence that a bill will be enacted within this administration’s term—although its final form remains uncertain.