Can Crypto Beat the Banks and Win Over Washington?

This is a critical week for the crypto industry. The most important crypto law ever to hit Congress is about to take a big step forward, and with the crypto market in the doldrums, the timing couldn’t be better.

This could be the last chance for the long-delayed bill to become law, as vacations and election season suck up much of the rest of the year on the congressional schedule. If it fails, the crypto industry will have wasted the opportunity of a lifetime to get a set of generally friendly rules enshrined into law.

The law, known as the Clarity Act, has been stuck in the Senate for months. The Senate Banking Committee is likely to approve it this week before a full Senate vote. The House will then need to vote on the Senate bill, a process that could stretch into summer.

Here’s why the law matters. Everyone in crypto flinches when they remember the Biden administration’s bashing of the industry. Never mind that FTX collapsed in the middle of it. The industry wants real rules, preferably friendly ones, that will prevent what it feels were arbitrary prosecutions. Real rules will also draw mainstream financial firms deeper into the industry, creating profits for those already there. 

In its current form, the law would give Washington’s two big financial regulators, the Securities and Exchange Commission and the Commodity Futures Trading Commission, specific areas of authority over crypto and set clear rules on crypto  issuance, trading and custody. The bill would also tweak rules for stablecoins, though that part is still unsettled. The end result would be crypto markets that look more like traditional markets for stocks and commodities. 

To get the bill through Congress, crypto backers will need to overcome two big hurdles. First, crypto remains as wild and risky as it was when FTX collapsed. Investors who piled into last year’s crypto rally have been hammered by a drawn-out downturn. There have been scams, kidnappings, a big crypto hack just last month, possible sanctions and anti–money-laundering violations, and a crazy crash that led to the liquidation of $10 billion in crypto. 

In prediction markets, which are often funded with crypto, my colleagues Michael Roddan and Yueqi Yang have reported about insider trading and a lack of transparency at some companies. The crypto investments of President Donald Trump’s family have generated howls about corruption. The current version of the bill has dropped an ethics provision that was under consideration, and that could be a deal killer for Democrats.

The result of all this is that mainstream support for crypto is slim. In a poll this month for crypto media company CoinDesk, just 30% of voters had a favorable view of crypto. On the flip side, Trump supports the bill, and Congress is stocked with lawmakers who received hundreds of millions of dollars in crypto campaign donations in 2024.

The bill’s second big hurdle is the banking industry, one of the most influential groups in Washington. The fight is over stablecoins—cryptocurrencies typically pegged to the dollar—and whether they can pay interest to their holders. Stablecoins typically maintain their value by holding safe assets such as U.S. Treasurys, and they want to pass the interest they earn on to their investors. 

Banks, especially small and midsize ones, are terrified that if that happens, their customers will move their deposits to stablecoins to earn higher interest rates. Customer deposits fund loans, often to small businesses, and banks argue that lending could fall significantly if stablecoins drain deposits.

If this fight sounds vaguely familiar, that’s because it is. Last year, Congress passed a stablecoin law that explicitly banned the issuers of stablecoins from paying interest. It took about a minute for the crypto industry to find a workaround and let platforms pay “rewards” instead. Banks are now rightfully skeptical that a deal brokered by two senators will not have another loophole.

The big question is whether the banks will use their immense lobbying power—think of the thousands of local banks, small business owners and farmers—to tank the bill. The crypto industry will fight back with threats to use its campaign war chest, worth hundreds of millions of dollars, to swat down any member of Congress who fails to support it.

There are good reasons to root for the crypto bill. It would provide regulatory certainty, which would draw more mainstream finance companies into the industry, and it might help reign in some of crypto’s worst excesses. If it fails, though, the big losers will be crypto backers, who may never see this chance again. 

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