Stablecoin Legislation Has Gone from ‘Slam Dunk’ to ‘at Risk’: Bitwise CIO

Senate Republicans are racing to meet Democratic lawmakers’ demands for changes to the GENIUS Act before a procedural vote scheduled for later today, May 8.

Bringing the Senate's stablecoin bill to a procedural vote would prevent a filibuster of the bill if 60 Senators support it. But it’s not clear if changes to the bill’s anti-money laundering (AML) and consumer protection provisions will be enough to win back Democratic support.

In a recent interview with The Defiant, Bitwise’s CIO, Matt Hougan, said recent pushback from Democrats against the Senate’s stablecoin bill has made him change his view of U.S. lawmakers’ approach to regulating crypto.

Since President Donald Trump took office and appointed pro-crypto leadership, Hougan had thought stablecoin legislation in particular would be an easy win for the industry:

Democrats are increasingly enraged by President Trump’s personal involvement with crypto in general and stablecoins in particular after an Abu Dhabi-backed firm announced plans to invest in Binance using $2 billion worth of Trump-backed World Liberty Financial’s (WLFI) new USD1 stablecoin.

That set off Democrats’ demands for legislation banning elected officials or their families from investing in cryptocurrencies while in office.

A delay in passing the bill could signal bad news for President Trump’s demand that Congress pass both stablecoin-focused legislation and a broader regulatory framework for cryptocurrency before going into recess in August.

First priority has been getting the relatively simpler — or at least more specific — stablecoin bill passed. Both the House and Senate’s stablecoin bills have passed out of committee and are set for floor votes.

August deadline in doubt

But the action against the Senate’s bill that began this past weekend, led by Sen. Ruben Gallego (D-Ariz.) on behalf of eight other senators, throws the August timetable into doubt.

Over the weekend, GOP Senate Majority Leader John Thune had said he was targeting a vote on the GENIUS Act before Memorial Day. But, he did add on Monday, May 5, that he is willing to reopen discussions on the bill to try and meet Democrats’ demands.

​​“Changes can be made on the floor for sure,” Thune said, adding that he is “waiting to see what it is [Democrats] are asking for,” according to Politico.

However, since the pushback from Democrats this weekend, Thune ended up filing cloture on the bill on May 6, a procedure to limit debate and prevent a filibuster. The vote today, May 8, is to approve cloture and allow the bill to move to a formal vote on the legislation, with the target timing evidently still set for Memorial Day.

What the Dems want

Nine Senators — including four who had voted to move the bill out of the Senate Banking Committee — expressed concerns with the bill, stating “the bill as it currently stands still has numerous issues that must be addressed, including adding stronger provisions on anti-money laundering, foreign issuers, national security, preserving the safety and soundness of our financial system, and accountability for those who don’t meet the act’s requirements.”

The eight other Senators are Mark Warner (D-Va.), Raphael Warnock (D-Ga.), Lisa Blunt Rochester (D-Del.), Catherine Cortez Masto (D-Nev.), Andy Kim (D-N.J.), Ben Ray Luján (D-N. Mex.), John Hickenlooper (D-Colo), and Adam Schiff (D-Calif.).

Notably, Sen. Kirsten Gillibrand (D-N.Y.), co-sponsor of the bill, is not among the objectors.

Sen. Bill Haggerty of Tennessee, the Republican sponsor of the GENIUS Act, said on X on Saturday, May 3: “We have a choice here. Move forward and make any remaining changes needed in a bipartisan way, or show that digital asset and crypto legislation remains a solely Republican issue.”

The crypto industry donated heavily to pro-crypto candidates, including then-candidate Trump, who were largely Republican.

Ripple Labs donated $4.9 million to the Presidential inauguration fund, making it the second-largest donor overall, according to Fortune. Stock and crypto exchange Robinhood donated $2 million, and both stablecoin issuer Circle and venture capital firm Paradigm donated $1 million each. Exchanges Coinbase, Kraken and Crypto.com were also large donors.

Big stakes for crypto

Whether the two sides can come together on crypto legislation will have a big impact on the industry, Bitwise CIO told The Defiant’s founder, Camila Russo, in the video interview earlier this week.

“It's really important for non-Bitcoin crypto assets that we see both stablecoin legislation and market structure legislation make its way through Congress and be passed into law,” Hougan said.

With those two pieces of legislation passed, Hougan predicted that traditional financial services will move into the crypto space “like a tidal wave” lifting all high-quality crypto assets.

“But if those two fizzle, and I don't think the market has recognized the full risk that they could fizzle, I think it could be challenging,” he added. “It should be a slam dunk. They're good for the U.S. government because they buy treasuries and they export dollar demand around the world.”

What’s challenging now is the new political element, Hougan said.

Earlier this week, House Republicans revealed a discussion draft for a market structure bill, aimed at creating a broader regulatory framework for crypto in the U.S.

The two stablecoin bills

With the drama around the GENIUS Act unfolding, the industry is understandably focused on the fate of the Senate’s bill. But the House’s own stablecoin bill, known as the STABLE Act, is also awaiting a vote.

Differences between the House’s STABLE Act and the Senate’s GENIUS Act mean that once passed by the full House and Senate, the two stablecoin bills will have to be reconciled and then go before both the House and Senate for a final vote.

However, the bills are about “80% similar,” Rep. Bryan Steil, Chair of the Digital Assets Subcommittee and co-sponsor of the House’s stablecoin bill, said in March.

Both bills define and focus on “payment stablecoins” in much the same way, requiring that they be backed by fiat currency or U.S. treasuries, and mandate monthly audits by accounting firms. Both create a study of algorithmic stablecoins, although the STABLE Act imposes a two-year moratorium on new algorithmic stablecoins.

Importantly, both bills are not focused on yield-bearing stablecoins. The STABLE Act explicitly prohibits yield-bearing stablecoins, while the GENIUS Act simply does not cover interest-bearing stablecoins, suggesting that they could be treated as securities. Both bills say that payment stablecoins — which they both seek to regulate — are not securities.

A recent report from the U.S. Treasury looked at the potential impact of yield-bearing stablecoins on U.S. bank deposits, if stablecoins with interest gained momentum in the U.S. As the report noted, yield-bearing stablecoins could compete with bank deposits, attracting depositors, who could potentially get a better return than checking and savings accounts pay.

What’s next

The House’s STABLE Act should have no trouble passing when it goes to vote, as a simple majority vote is required.

The Senate, however, has cloture rules, which specify that 60 senators can vote to close debate on a bill, effectively killing filibusters. Without that supermajority, Democrats could hold up the bill indefinitely.

As negotiations are being reopened on the GENIUS Act, with an eye toward appeasing the objecting Democrats, the question remains: will the GENIUS Act pass in time to allow House and Senate negotiators to agree on a single bill before the August summer recess, per the President’s request? Given the speed at which legislation works, agreement will have to come soon.

The last-minute change of heart suggests that the larger and more complex crypto regulatory framework bills — aka a market structure bill — will have a more difficult time being finalized and passed before August.