The Senate gave its stamp of approval on Wednesday to a massive and growing chunk of the cryptocurrency industry, blessing it with a light-touch regulatory regime that, experts say, may come with a price tag: the stability of the country’s financial system. It’s the most significant victory yet for the crypto lobby, which enjoys near-unanimous support in the Republican Party as well as significant backing from many Democrats.
This bill passed with 68 votes in support, 30 against.
The bill opens the door for a notoriously risky form of cryptocurrency known as stablecoins to enter the rest of the mainstream financial system.
Unlike other forms of crypto, which can generate massive speculative gains or gutting losses through wild fluctuations in price, stablecoins are pegged to the value of a government-backed currency, typically the dollar. Crypto advocates argue that they serve as the backbone for the crypto economy, giving users a stable, crypto-based form of payment with which to buy other forms of digital currency or, if the extended crypto universe really takes off, real-world items and services.
Thanks to the Senate passage of the GENIUS Act, it may. Among other things, the bill allows bank subsidiaries and big tech companies to issue their own stablecoins, a fact that, experts told TPM, could usher in a reality that hearkens back to the 19th century, when banks issued their own, alternative notes at different valuations. X, Amazon, Facebook; all of these companies and more could soon issue their own stablecoins, allowing (or forcing, depending on your standpoint) customers to transact in a currency controlled by the company itself.
The U.S. government’s embrace of stablecoins could provide a long-sought, non-speculative use case for cryptocurrency. But experts have warned that, in doing so, it could wreak havoc on the financial system.
Stablecoins maintain their, well, stability through backing assets. If you buy one dollar worth of stablecoin, the company that issues it may put that dollar in a bank somewhere, or use it to purchase a yield-generating asset like a treasury bond. Riskier stablecoin firms may make other, more exotic decisions about how to keep the coin stable.
The result is that stablecoin issuers may end up acting somewhat like banks, investing what stablecoin users think of as deposits in various ways. Problems may arise in the event of a crisis: stablecoin users could attempt to redeem their coins for dollars en masse, causing a run. That could then spark a mass withdrawal of the backing assets, rapidly depressing the treasury market or destabilizing banks that hold the cash that backs various coins.
There’s no deposit insurance for stablecoins, or other forms of regulation that apply to banks and keep them stable. This has prompted concern among many experts, including several figures who were in government through the 2008 financial crash.
Barry Eichengreen, an economics professor at UC-Berkeley, warned in an op-ed for the New York Times on Tuesday that the law risked bringing the country back to the wild west days of American banking, where chaos in the system saw constant collapses and bank runs.
“The arrow of history points away from the private provision of multiple kinds of money. Virtually all economies, and not just that of the United States, have moved to create a more uniform, reliable payment system suitable for a deeply interconnected economy,” Eichengreen wrote. “Fracturing the payment system would only undermine that economy.”
The vast majority of Republicans supported the bill, along with a significant group of Democrats split off to vote for its passage. Sen. Kirsten Gillibrand (D-NY), the bill’s first Democrat co-sponsor, led that group, and was accompanied by Sens. Ruben Gallego (D-AZ), Angela Alsobrooks (D-MD), and Mark Warner (D-VA) in the last month of negotiations over the bill.
The GENIUS Act will give an added veneer of legitamacy to President Trump’s own forays into cryptocurrency; he has his own stablecoin, USD1. Recent reporting suggests that it’s off to a rocky start; the exchange on which its traded, Binance, shook off SEC scrutiny after listing the coin.
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