Coinbase Abandons Support for Senate Crypto Bill, Citing “Fatal Flaws” That Would Harm Everyday Users

Industry Giant Identifies Critical Issues in Legislation Just Hours Before Key Vote

In a dramatic reversal that sent ripples through the cryptocurrency sector, Coinbase has withdrawn its support for the Senate’s highly anticipated market structure bill, citing provisions that would harm average crypto users and stifle innovation. This unexpected development highlights the growing tensions between traditional banking interests and the evolving cryptocurrency ecosystem as legislators struggle to create appropriate regulatory frameworks for digital assets.

According to Kara Calvert, Coinbase’s Vice President of US Policy, the company identified “fatal flaws” in the legislation mere hours before a scheduled markup session that would have advanced the bill. Speaking with CoinDesk TV in an exclusive interview, Calvert detailed how the exchange’s policy team uncovered problematic language that fundamentally altered their position on what had previously been considered promising legislation.

“When you’re looking down the barrel of a gun, you don’t pull the trigger,” Calvert explained, referring to the hostile amendments the company faced. “A bad bill is something that tips the scale to leaving not just the crypto industry but everyday consumers worse off.” The hasty timeline contributed significantly to the breakdown, with Calvert noting that the draft had less than 24 hours to “breathe,” providing virtually no opportunity to address six amendments that would have made the bill “materially worse” from the industry’s perspective.

Reward Programs and Regulatory Flexibility at Center of Controversy

The primary dealbreaker for Coinbase involved language that would effectively eliminate rewards programs for customers holding cryptocurrency balances on the platform. These programs, which function similarly to interest-bearing accounts in traditional finance, have become a cornerstone of cryptocurrency platforms’ appeal to mainstream users. Calvert argued that eliminating such rewards would disproportionately hurt affordability for everyday Americans who have embraced digital assets as part of their financial strategy.

Additionally, the exchange expressed serious concerns about provisions that would strip the Securities and Exchange Commission (SEC) of its “exemptive relief” authority – a crucial regulatory tool that allows new technologies to evolve under current rules without immediate enforcement actions. This flexibility has been vital for the nascent industry as it navigates the complex regulatory landscape while continuing to innovate.

The controversial provisions reflect a deeper clash between legacy banking interests and modern cryptocurrency business models that is playing out in Washington. Traditional banks have actively pushed for protection from non-bank stablecoin rewards programs, arguing these products represent unfair competition with traditional deposit accounts. However, Calvert directly challenged this premise, suggesting that stablecoins and bank deposits serve fundamentally different purposes in the financial ecosystem.

Industry Experts Note Broader Implications of Regulatory Approach

TuongVy Le, General Counsel at blockchain analytics firm Veda Labs, offered a broader perspective on the controversy, suggesting the fight over stablecoin yield is “missing the forest for the trees.” According to Le, the dispute reflects a fundamental paradigm shift in financial services, where consumers increasingly expect to capture more value directly from their money rather than seeing those benefits accrue primarily to financial intermediaries.

“What we’re witnessing is not simply a technical regulatory debate, but a clash of financial philosophies,” said Le. “Traditional banking models have long depended on capturing the spread between what they earn on deposits and what they pay customers. Cryptocurrency platforms have disrupted this model by passing more of that value back to users.”

This philosophical divide became apparent in the eleventh-hour negotiations around the bill. Banking industry representatives reportedly pushed for restrictions on cryptocurrency rewards programs that would preserve their competitive advantage, while cryptocurrency advocates fought to maintain what they view as one of the key consumer benefits of blockchain technology: the ability to earn passive income from digital assets without excessive intermediation.

The timing of the legislation’s collapse also highlights the challenges of creating effective regulatory frameworks in a rapidly evolving technological landscape. With less than 24 hours between the introduction of critical amendments and the scheduled committee vote, industry stakeholders had minimal opportunity to analyze the implications or propose alternative solutions that might have preserved the bill’s original intent while addressing legitimate regulatory concerns.

Path Forward Remains Uncertain But Hope Persists

Despite the apparent breakdown in consensus, industry insiders remain surprisingly optimistic that meaningful cryptocurrency legislation can still pass before the November midterm elections. Calvert herself expressed confidence that the banking bill can get “back on track” with appropriate revisions, while also praising a separate draft from the Agriculture Committee that would give the Commodity Futures Trading Commission (CFTC) critical authority over spot markets for digital assets.

“This setback doesn’t mean the end of cryptocurrency regulation this session,” noted one industry analyst who requested anonymity to speak candidly about ongoing negotiations. “There’s still strong bipartisan interest in establishing clear rules of the road for digital assets. What happened here was a specific bill with specific problems, not a rejection of the regulatory project as a whole.”

Political observers point out that the upcoming midterm elections create both urgency and complications for cryptocurrency legislation. On one hand, lawmakers on both sides of the aisle are eager to demonstrate progress on high-profile economic issues before facing voters. On the other hand, increasingly partisan dynamics as elections approach may make consensus-building more difficult, especially on technically complex issues like cryptocurrency regulation.

Broader Implications for the Future of Financial Innovation

The collapse of this particular legislative effort underscores the difficulty of balancing consumer protection, innovation, and competitiveness in the rapidly evolving digital asset space. As cryptocurrency platforms increasingly offer services that resemble traditional banking functions while operating on fundamentally different technological infrastructure, policymakers face the challenge of applying existing regulatory frameworks to novel business models without stifling the very innovations that make these platforms attractive.

“What’s at stake here is not just the future of cryptocurrency, but the future of financial services more broadly,” explained a financial technology researcher at a prominent Washington think tank. “The question is whether our regulatory approach will accommodate new models that potentially offer greater efficiency and consumer benefits, or whether it will primarily serve to protect incumbent institutions from disruptive competition.”

For Coinbase and other major cryptocurrency platforms, the episode highlights both their growing political sophistication and the challenges they face in navigating Washington’s complex policy ecosystem. By withdrawing support for legislation they had previously backed, these companies demonstrated both their increased willingness to take definitive policy positions and their ability to influence the legislative process – developments that signal the industry’s ongoing maturation from regulatory outsider to significant financial player.

As lawmakers return to the drawing board, the cryptocurrency industry’s stance is clear: regulation is welcome and necessary, but only if it protects consumers while allowing innovation to flourish. Whether Congress can craft legislation that meets these criteria before voters go to the polls remains one of the most consequential open questions in financial regulation today.