Coinbase Threatens to Pull Backing for Senate Crypto Bill: A Watershed Moment for Digital Asset Regulation

Coinbase draws a line in the sand—the exchange giant signals it may withdraw crucial support from pending Senate legislation, sending shockwaves through Washington and crypto markets alike.

The Stakes Just Got Real

This isn't just corporate posturing. When America's largest publicly-traded crypto platform threatens to walk away from a legislative framework, lawmakers feel the heat. The bill's architects suddenly face a stark choice: adapt the proposal to industry realities or watch a key ally vanish—taking its political capital with it.

Why This Standoff Matters

Regulatory clarity remains crypto's holy grail. For years, exchanges and investors have navigated a patchwork of state rules and ambiguous federal guidance. A coherent Senate bill promised to change that—until now. Coinbase's move exposes the fragile consensus behind crypto regulation. It reveals how quickly corporate support can evaporate when proposals miss the mark.

The Domino Effect

Watch other industry players follow suit. Where Coinbase leads, smaller exchanges and blockchain firms often trail. This could trigger a coordinated withdrawal of support, leaving the bill politically stranded. Lawmakers then face two unappealing paths: start over or push through legislation the industry opposes—a recipe for legal challenges and market disruption.

Between Pragmatism and Principle

Coinbase walks a tightrope. Publicly, it champions smart regulation. Privately, it must protect its business model from rules that could strangle innovation or hand advantages to offshore rivals. This tension defines the entire crypto-regulatory dance—everyone wants rules, but only the right rules. One lobbyist's 'common-sense safeguard' is another's 'existential threat.'

The clock ticks toward 2026. With elections looming, legislative windows close fast. Coinbase's gambit forces the issue: compromise now or risk another congressional cycle of stalemate. Meanwhile, traders keep trading, protocols keep building, and that cynical old Wall Street maxim proves true once more—markets hate uncertainty, but they absolutely despise being told what to do.

Banking Industry Pushes for Broader Yield Restrictions

Traditional banking groups are lobbying to expand restrictions beyond what Congress established in the GENIUS Act, which bars stablecoin issuers from paying direct interest but allows third-party platforms to offer rewards.

One option under consideration WOULD limit rewards to regulated financial institutions, a move backed by banking interests who argue that yield-bearing stablecoin accounts could drain deposits from community banks.

The American Bankers Association wrote in a recent letter that “if billions are displaced from community bank lending, small businesses, farmers, students, and home buyers in towns like ours will suffer.“

The group warned that crypto exchanges cannot replicate FDIC-insured products or fill the lending gap created by deposit outflows.

Coinbase has applied for a national trust charter that could eventually allow it to offer rewards under such rules.

However, crypto-native firms are pushing to preserve platform-based incentives as a viable model even without banking licenses, warning that broader restrictions could eliminate competition in the sector.

Stablecoin Rewards Generate Critical Revenue for Coinbase

For Coinbase, the rewards represent a significant revenue stream worth protecting.

The exchange and Circle Internet Group share interest income generated from reserves backing Circle’s USDC stablecoin, with USDC parked at Coinbase providing steady revenue that becomes especially important during bear markets.

Coinbase also owns a small stake in Circle, currently the largest stablecoin issuer in compliance with US law.

The platform encourages users to hold USDC by offering 3.5% rewards on Coinbase One balances.

If the market structure bill bans such incentives, fewer customers may hold stablecoins on the exchange, potentially reducing Coinbase’s total stablecoin revenue, which Bloomberg data projects reached $1.3 billion in 2025.

Faryar Shirzad, Coinbase’s chief policy officer, argued in a recent post that preserving reward schemes is important for maintaining dollar supremacy, noting that China announced plans to start paying interest on its digital yuan starting January 1, 2026.

“Undermining the supremacy of the USD has been a longstanding goal of the PRC—the Senate banning rewards would be a big assist to China’s efforts,” he wrote.

The Senate Banking Committee marks up the Market Structure bill next week, and stablecoin rewards remain under debate. Congress already settled this in GENIUS—reopening it now only creates uncertainty and risks the future of the US Dollar as commerce moves onchain. Here’s why…

Bipartisan Support Erodes as Midterms Approach

While the TRUMP administration supports swift legislative action, the stablecoin rewards dispute has fractured bipartisan backing for the market structure bill.

Senate Agriculture Committee Chair John Boozman is considering delaying his committee’s January 15 vote to allow more time for negotiations with Democratic lead negotiator Cory Booker.

Boozman stated earlier this week that he intended to hold the vote next week regardless of bipartisan support. Booker expressed hope on Thursday that the two sides could reach an agreement.

Adding to the stalling vote, TD Cowen warned earlier this month that the 2026 midterm elections could delay passage until 2027, with Senate Democrats potentially withholding support as lawmakers position for the next cycle.

Bloomberg Intelligence analyst Nathan Dean suggested the markup’s lack of bipartisan support may push odds of first-half passage below 70%.

U.S. Senate to vote on crypto market structure bill on January 15 despite deep divisions over key issues#CryptoRegulation #USSenate https://t.co/kUWyH1mRCl

The legislative push unfolds as multiple Senate committees prepare parallel markups, with WHITE House crypto czar David Sacks pressing lawmakers to act this month amid momentum to create clearer regulatory frameworks for digital assets.

Industry insiders believe that even if restrictions pass, crypto companies will find new ways to reward users, creating a regulatory game of whack-a-mole as firms seek alternative incentive structures.