How Bank Lobbying Has Tarnished the Crypto Market Structure Bill's Progress

The U.S. cryptocurrency industry faces an unexpected threat this week not from political opposition, but from aggressive banking sector intervention in what was supposed to be a carefully negotiated legislative compromise. As the Senate Banking Committee prepares for a committee vote on a revised market structure bill, the most disruptive force isn’t partisan disagreement—it’s the arrival of bank lobbyists demanding changes that have already tarnished negotiations and forced significant concessions.

The battle centers on a deceptively simple question: whether cryptocurrency platforms can offer rewards to customers holding stablecoins. For the crypto industry, this represents a fundamental right that was already settled law. For the banking sector, it represents an existential threat to the deposit-based business model that underpins American lending and community banks.

The Core Conflict: Stablecoin Rewards as a Regulatory Flashpoint

The confrontation between financial incumbents and the crypto industry stems from competing visions of how digital asset custody should work. Banks argue that offering rewards on stablecoins mirrors interest-bearing savings accounts, potentially draining deposits that fuel lending to small businesses and homebuyers. The American Bankers Association has warned that crypto reward programs could trigger “a multitrillion dollar disruption to local lending” and jeopardize community bank viability.

Cryptocurrency advocates reject this framing entirely. Kara Calvert, VP of U.S. Policy at Coinbase, argues the comparison is fundamentally flawed: “Bank deposits are reinvested for the banks’ own purposes. Crypto firm holdings are not deposits—they’re held in custody on behalf of users.” This distinction matters legally because bank deposits receive Federal Deposit Insurance Corp. protection precisely because banks actively deploy capital. Cryptocurrency platforms operate differently, making the deposit comparison misleading at best.

Yet the banking industry’s lobbying intensity suggests deeper concerns extend beyond retail deposits. Crypto lobbyists, including those at Coinbase, note the irony that megabanks dominate this argument about community bank deposits while simultaneously pursuing lucrative payment systems dominance. JPMorgan Chase’s CFO recently acknowledged on an earnings call that competition itself is driving the regulatory intervention, though framed in deposit protection language.

How GENIUS Act Set the Stage for Legislative Tension

Last year’s passage of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act appeared to resolve this exact question. The law prohibited direct interest payments by stablecoin issuers to holders, but intentionally preserved the ability of third-party platforms—like Coinbase and Circle—to share rewards with customers.

This wasn’t accidental language. Lawmakers explicitly crafted the distinction to allow innovation while addressing banking concerns. Circle’s USDC, for instance, can generate returns through reserve management. Coinbase can share a portion of those returns with users through rewards programs—a mechanism that generated $355 million in stablecoin-related revenue in a recent quarter alone.

For seven months following GENIUS enactment, the crypto industry proceeded with business confidence. That stability evaporated when banking representatives intensified advocacy efforts during Senate negotiations for the broader Digital Asset Market Clarity Act, the market structure bill heading toward imminent votes.

The Compromise That Disappointed Crypto Advocates

The Senate Banking Committee’s midnight release of the revised bill language reveals how effectively the banking lobby has tarnished the original legislative consensus. The new proposal attempts a middle ground: stablecoins cannot offer rewards if held passively like savings accounts, but rewards derived from active transactions and user activity remain permitted.

This compromise represents a partial victory for banking interests but a setback for broader crypto ambitions. Brian Armstrong, Coinbase’s CEO, publicly warned that his company may withdraw support from any bill that capitulates to banker demands and forces elimination of customer reward programs.

Yet some policy observers question whether the restriction carries real force. Corey Frayer, a former crypto adviser to SEC Chair Gary Gensler now at the Consumer Federation of America, contends the restriction is largely performative: “The primary way platforms fund yield is through staking and on-lending, which are explicitly carved out. This language bans yield on stablecoins in appearance but not in practice.”

What’s at Stake: The Industry’s Pushback Against Banking Interests

The crypto industry’s response has been swift and unified. In December, major platforms sent formal letters to leading senators challenging any effort to reverse the GENIUS Act compromise. The Blockchain Association’s CEO, Summer Mersinger, framed the dispute starkly: “What is threatening progress is not a lack of policymaker engagement, but the relentless pressure campaign by big banks to rewrite this bill to protect their own incumbency.”

This accusation cuts to the heart of the dispute: whether regulatory decisions should reflect authentic policy concerns or incumbent financial industry self-preservation. Mersinger warned that if banks successfully derail the legislation with overreach, they face the irony of returning to the GENIUS Act status quo they’ve claimed is “completely unworkable.” The self-inflicted wound would expose “exactly who is fighting for consumers and who is fighting to preserve monopoly power.”

Unfinished Business: What Comes Next in the Senate

The committee markup process continues this week with members fielding amendments, but final passage remains uncertain. The Agriculture Committee has postponed its parallel markup until late January to allow further negotiations. Even if both committees pass versions of the bill, they must be reconciled before full Senate consideration becomes possible.

Wall Street banks will remain at the negotiating table as final language gets hammered out, though Mersinger accuses them of failing to negotiate in good faith. The current draft represents a partial tarnishing of crypto’s original legislative ambitions, but the process remains fluid and the outcome far from predetermined.

Multiple veto points remain—Democratic support is uncertain, the Agriculture Committee process hasn’t concluded, and the reconciliation phase poses additional complexities. Banking industry intervention has already shifted the baseline from where negotiations began, forcing crypto advocates to defend ground they thought was settled by last year’s GENIUS Act framework.