The US stablecoin bill has been rejected; will the cooling of regulation affect the restart of alt season?

Written by: Ashley, Penny

Since Trump returned to the White House, the stablecoin bill, which has attracted considerable attention and can be described as smooth sailing, has recently encountered setbacks. The "GENIUS Act", or the "Guidance and Establishment of a National Innovation Framework for Stablecoins in the U.S.", is a piece of legislation proposed by the U.S. Senate on February 4, 2025, aimed at establishing a comprehensive regulatory framework for payment stablecoins within the United States, to promote financial innovation, protect consumers, prevent illegal financial activities, and strengthen the dollar's dominant position in the global financial system.

This landmark cryptocurrency bill encountered unexpected obstacles during negotiations, as nine key Democratic senators publicly stated on May 3 that they would refuse to support the revised version proposed by the Republicans last week. On May 9, the Senate voted 48-49 against the Stablecoin Innovation and Security Act, with Democrats collectively rejecting the motion to advance the bill. The bill aims to establish the first federal regulatory framework for stablecoins pegged to the US dollar, which is one of the key focuses of Trump's cryptocurrency policy.

Also today, the long-standing case between Ripple and the SEC has finally come to a close, and its ties to American political groups have been brought to light by the Democrats, who publicly emphasize the need to prohibit the Trump organization from participating in cryptocurrency. With conflicting interests and party rivalries, can Trump continue his previous plans to build a new crypto empire?

Political factions are engaged in interest transfer, causing rifts in both the House and the Senate.

Looking back at 2024, the Senate and the House of Representatives have been "on the same page" when it comes to crypto legislation. In May last year, the House of Representatives passed the 21st Century Financial Innovation and Technology Act (FIT21) by a vote of 279 to 136, establishing a new regulatory framework for digital currencies, which was supported by 71 Democrats, demonstrating bipartisan consensus. The bill emphasizes the CFTC's role in crypto regulation and aims to promote innovation through clear rules, which Rep. Young Kim called "a new era of crypto regulation in the United States." Although the Senate is moving at a slower pace, it is also pushing Senators Cynthia Lummis and Kirsten Gillibrand to introduce the Lummis-Gillibrand Payment Stablecoin Act, which attempts to regulate stablecoins. In March, the House of Representatives voted in bipartisan support to repeal a Biden administration's crypto tax rule, with the Senate not explicitly opposing it, with both goals being to provide legal protection for the industry while protecting investors.

Due to the successful fundraising operations last year and Trump's return to politics, the influence of the cryptocurrency industry has surged. If this stablecoin bill passes, it will become the first major crypto reform in the Senate after years of lobbying.

Recently, however, the Senate has been slow to pass a comprehensive bill like FIT21, and stablecoin regulatory negotiations have been stymied by opposition from key Democrats. Senate Minority Leader Chuck Schumer urged his fellow Democrats to refrain from pledging to support the GENIUS Act for more room for change in a closed-door meeting on May 2. The most direct reason for the disagreement between the two chambers on crypto regulation is that the crypto industry is increasingly linked to political groups, many of which are suspected of manipulating the market for personal gain.

A well-known example is the lawsuit between Ripple and the U.S. Securities and Exchange Commission. On May 9, court documents showed that Ripple and the SEC had reached a settlement agreement, intending to lift the injunction imposed on Ripple in the court's ruling in August 2024, and to pay only $50 million of the $125 million civil penalty to the SEC, with the remaining $75 million being returned to Ripple. Both parties agreed not to appeal and not to request the reversal of the previous judgment.

Ripple's Chief Legal Officer Stuart Alderoty emphasized "case closed" on social media, calling it the "final update" and attempting to shape the company's compliance image to dispel market doubts. Additionally, Ripple CEO Brad Garlinghouse boldly announced an investment of $2 billion for acquisitions in the crypto industry, shifting the focus to business expansion rather than the case itself. He also discussed the financial damage caused by the lawsuit, stating that the legal proceedings could lead to a loss of value for XRP holders of up to $15 billion.

Although the settlement agreement did not explicitly define the securities nature of XRP, Ripple has promoted XRP price fluctuations by emphasizing "policy benefits" and "institutional cooperation." At one point, David Sacks, appointed as the crypto czar by Trump, publicly stated that "Ripple won the SEC lawsuit" and advocated for the legitimacy of tokens such as XRP, SOL, and ADA.

Ripple's long-standing "compliance statement" has not truly advanced the legitimacy of cryptocurrency; its settlement with the SEC seems more like a cover-up of deep-seated interests, especially given that XRP holders have incurred losses of up to $15 billion due to the lawsuit, which raises further suspicions of Ripple manipulating the market. Democrats have questioned the connection between its statements and the cryptocurrency assets held by the Trump family, and senior Senator Richard Blumenthal has launched a preliminary investigation into potential conflicts of interest and illegal activities related to Trump family enterprises. Calls within the Democratic Party for a thorough investigation into the cryptocurrency interest groups are growing louder, which has even affected the advancement of cryptocurrency legislation.

According to TheBlock, Senate Majority Leader John Thune has submitted a motion to end debate on the stablecoin "GENIUS Act" (officially titled the "2025 Stablecoin Innovation Act"), with a critical procedural vote scheduled for Thursday. The bill, led by Bill Hagerty, requires that stablecoins be 100% backed by liquid assets such as US dollars or short-term government bonds. The bill needs to secure 60 votes in favor, with the current Senate consisting of 53 Republicans and 47 Democrats, meaning Republicans must gain the support of at least 7 Democrats.

On the Democratic side, Senator Ruben Gallego and 8 others have jointly opposed the current version, demanding strengthened regulations on foreign issuers and anti-money laundering provisions. Senator Richard Blumenthal has sent an inquiry letter to the Trump-associated cryptocurrency firm World Liberty Financial to investigate potential conflicts of interest. On the Republican side, Rand Paul criticized the overregulation of stablecoins, while Senator Josh Hawley expressed concerns about tech giants issuing stablecoins.

In this regard, Coinbase CEO Brian Armstrong stated that this week, the (U.S.) Congress has a good opportunity to advance stablecoin and market structure legislation. Coinbase strongly supports the Senate's debate on the "GENIUS Act," which requires 60 votes to pass. Coinbase also welcomes the House's efforts to maintain the momentum of FIT21. If comprehensive legislation is to be passed into law before August, both chambers of Congress need to take action immediately.

What is the focus of the divergence?

The core objective of the "GENIUS Act" is to establish a federal regulatory framework for stablecoins, ensuring their stability pegged to the dollar while promoting innovation in the crypto industry. The bill gained bipartisan support in the Senate Banking Committee this March.

The most fundamental disagreement likely stems from Trump, the "crypto president." NFTs, meme coins, DeFi, stablecoins—Trump has deeply tied his personal brand to the crypto space. Recently, the much-discussed "Cryptocurrency and AI Innovators" dinner in the circle has a ticket price that has reached as high as 1.5 million dollars.

Of course, the most showy aspect here is his stablecoin fund project. Trump issued stablecoins through the crypto company "World Liberty Financial" and reached a $2 billion deal with a fund backed by the Abu Dhabi government, which sparked dissatisfaction and opposition from Senate Democrats. Reports indicate that Trump's crypto assets account for nearly 40% of his net worth, approximately $2.9 billion, including a substantial stake in World Liberty Financial and the issuance of $TRUMP and $MELANIA meme coins.

White House spokesperson Anna Kelly argued that Trump's assets are managed by a trust set up by his children, and there is no conflict of interest, emphasizing that Trump is committed to making the U.S. the "global crypto capital." However, Senator Richard Blumenthal had already sent a letter on May 6 to World Liberty Financial and Fight Fight Fight LLC (the company that issued the $TRUMP meme coin), requesting communication records with the Trump family, the Trump Organization, and foreign governments to investigate potential conflicts of interest.

The "GENIUS Act," which was originally expected to undergo procedural voting this week, has stalled due to the aforementioned reasons, facing accusations of ethical controversies and conflicts of interest. Key members of the Banking Committee, including Senator Elizabeth Warren, believe the "GENIUS Act" could facilitate profit-making by the president and have called for the Senate to reject the bill. She distributed a memo to all Democratic senators outlining the bill's shortcomings in terms of anti-corruption, consumer protection, financial system stability, and national security. The memo suggested that the bill should prohibit elected officials and their families from participating in stablecoin businesses to avoid conflicts of interest.

At the same time, Senator Jeff Merkley introduced the "Ending Crypto Corruption Act" on May 6, which prohibits the President, Vice President, members of Congress, and their immediate family members from profiting from crypto assets. The bill is co-sponsored by 10 Democratic senators, including Kirsten Gillibrand and Angela Alsobrooks, who were original co-sponsors of the "GENIUS Act," reflecting deep concerns within the Democratic Party about Trump's crypto business.

In addition, the stablecoin giant Tether is also in the crosshairs. According to two anonymous Democratic aides, Senate Minority Leader Chuck Schumer (D-NY) urged his colleagues during a closed-door meeting on Thursday to refrain from committing to support the bill, arguing that they should use their bargaining power to seek further modifications. He specifically questioned the bill's regulatory provisions for foreign companies like Tether. They pointed out that the GENIUS Act lacks strict regulations for foreign companies such as Tether, which could open the door to money laundering and terrorism financing.

This morning, the U.S. Senate voted down the "Stablecoin Innovation and Security Act" with a vote of 48 to 49, as Democrats collectively rejected the motion to advance the bill. The bill required 60 votes to move forward in the Senate's final voting procedure, while Republicans currently hold a slight advantage with a 53-47 seat majority. Democrats are demanding the inclusion of clear provisions that prohibit executive officials, including former President Trump and his family members, from holding or trading cryptocurrencies, and to strengthen anti-corruption measures. Will the policy direction prioritize consolidating the U.S. dollar's dominance or strictly prevent the transfer of interests? The path to cryptocurrency development is compounded by partisan conflicts, and may face more challenges in the future.