Crypto Shock in Washington: Coinbase Pulls the Plug and Forces Senate to Freeze the CLARITY Bill

Coinbase Pulls Support From CLARITY Act, Triggering Senate Delay and Fresh Crypto Policy Debate

The U.S. crypto policy landscape faced renewed uncertainty this week after Coinbase, one of the country’s largest digital asset platforms, formally withdrew its support for the proposed CLARITY Act, a landmark bill aimed at restructuring how cryptocurrencies are regulated in the United States.

The decision sent immediate shockwaves through Capitol Hill. Within hours, the Senate Banking Committee postponed a scheduled markup vote originally planned for January 15, signaling that lawmakers were not prepared to advance legislation without broader industry consensus.

The development underscores Coinbase’s growing influence in shaping U.S. crypto regulation and highlights deepening divisions over how digital assets, decentralized finance, and stablecoins should be governed.

What Is the CLARITY Act and Why It Matters

The CLARITY Act was designed to resolve one of the longest-running problems in U.S. crypto policy: regulatory confusion.

Under the proposed framework, oversight responsibilities would be split between two federal agencies:

The Securities and Exchange Commission would regulate tokens classified as securities, while the Commodity Futures Trading Commission would oversee digital commodities such as Bitcoin.

Supporters argue the bill would finally provide legal certainty for developers, investors, and exchanges by clearly defining jurisdiction, strengthening investor protection, and introducing standardized anti-fraud safeguards. Industry leaders have long complained that unclear enforcement boundaries have slowed innovation and pushed talent offshore.

Until this week, Coinbase had been viewed as a key supporter of that effort.

Why Coinbase Reversed Course

Coinbase Chief Executive Officer Brian Armstrong said the company could no longer support the bill in its current form, citing what he described as “structural flaws” that could harm innovation and consumer choice.

Source: Xpost

In public statements, Armstrong warned that the draft legislation could effectively block tokenized equities in the United States, impose restrictive compliance requirements on decentralized finance protocols, and weaken the authority of the CFTC by placing it beneath the SEC in practice rather than treating both regulators as equals.

However, the most contentious issue centered on stablecoin rewards.

Stablecoin Rewards Become the Breaking Point

At the heart of Coinbase’s opposition is language in the bill that could prevent platforms from sharing interest earned on stablecoin reserves with users.

Coinbase currently offers yield-based rewards, often around three to four percent, on U.S. dollar-backed stablecoins such as USDC. These rewards have become a core feature of retail crypto participation, allowing users to earn passive returns without engaging in high-risk trading.

Armstrong argued that banning or restricting these rewards would increase costs for consumers, limit competition, and tilt the financial system back in favor of traditional banks.

He stated that “no bill is better than a bad bill,” adding that lawmakers risk undermining innovation if stablecoin incentives are eliminated under pressure from banking interests.

Senate Banking Committee Hits Pause

Following Coinbase’s announcement, Senate Banking Committee staff confirmed that the planned markup vote had been postponed indefinitely. No new timeline has been announced.

The delay reflects growing concern among lawmakers that advancing the bill without addressing major industry objections could fracture support and weaken the legislation’s credibility.

Source: Xpost

While the pause does not signal the bill’s collapse, it highlights how fragile consensus remains around crypto regulation, particularly when economic incentives collide with regulatory priorities.

Industry Reaction Remains Divided

Despite Coinbase’s withdrawal, several major crypto and fintech organizations continue to support the CLARITY Act. These include blockchain infrastructure firms, venture capital groups, and policy advocacy organizations that view the bill as a necessary first step toward regulatory stability.

Supporters argue that perfect legislation should not stand in the way of meaningful progress, noting that regulatory clarity could unlock institutional adoption and reduce enforcement uncertainty.

Others, however, say stablecoin rewards represent a red line that lawmakers cannot ignore.

Lawmakers Defend the Framework

Senate Banking Committee leadership pushed back against claims that the bill undermines innovation.

Committee Chair Tim Scott said discussions remain ongoing and emphasized that the bill reflects months of bipartisan negotiation. He stated that the legislation is designed to protect consumers, safeguard national security, and ensure that financial innovation remains anchored in the United States rather than migrating overseas.

Senator Cynthia Lummis, one of Congress’s most vocal supporters of digital assets, also defended the proposal. She said the CLARITY Act could position the U.S. as a global leader in crypto governance if implemented correctly, while acknowledging that refinements may still be needed.

Banks vs. Crypto Platforms: A Deeper Conflict

The stablecoin rewards debate reflects a broader struggle between traditional banking institutions and crypto-native platforms.

Banks argue that interest-bearing stablecoins pull capital away from deposits, weaken lending capacity, and create regulatory arbitrage. Crypto firms counter that stablecoin rewards simply reflect efficient capital markets and offer consumers better options.

Source: Xpost

Coinbase warned that limiting stablecoin incentives could weaken the U.S. dollar’s influence in global digital markets, particularly as other countries experiment with interest-bearing central bank digital currencies.

Market Impact and What Comes Next

Despite the political tension, market participants remain cautiously optimistic.

Several industry executives believe a compromise will emerge, particularly if lawmakers revise stablecoin provisions without dismantling the broader regulatory framework.

If stablecoin rewards survive in some form, U.S. crypto platforms may continue to grow domestically. If they are banned outright, analysts warn that liquidity and innovation could shift toward offshore jurisdictions with more flexible rules.

For now, the legislative process remains in flux. Coinbase’s decision has slowed momentum but has not ended the debate.

Conclusion

Coinbase’s withdrawal of support from the CLARITY Act marks a pivotal moment in U.S. crypto regulation. The clash over stablecoin rewards reveals fundamental disagreements about who benefits from digital finance and how innovation should be governed.

As lawmakers revisit the bill, the next draft will likely shape the future of digital assets in America for years to come. Whether consensus can be rebuilt will determine if the U.S. leads the next phase of financial innovation or watches it unfold elsewhere.

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