“This industry needs clear rules of the road that it can follow while simultaneously promoting both responsible innovation and protecting consumers,” said Sen. Cynthia Lummis (R-WY), the chairwoman of the Senate Banking Subcommittee on Digital Assets.

Lummis has been a champion for bitcoin and digital assets in Congress and has made strides in shaping policy. Earlier this month, Sens. Lummis, Bill Hagerty (R-TN), and Kirsten Gillibrand (D-NY) introduced a bill that would create a regulatory framework for a unique class of cryptocurrency called stablecoins, which are digital currencies pegged to other assets like the U.S. dollar. 

Lummis also mentioned another bill she previously introduced with Gillibrand, the Responsible Financial Innovation Act, back in 2023 that clarified federal regulators’ responsibilities. There has been a turf war between the Commodity Futures Trading Commission and the Securities and Exchange Commission, and the bill differentiates the role of each when it comes to digital currency. 

Sen. Ruben Gallego (D-AZ), the ranking member of the panel who has been friendly to the industry, said the market “presents both extraordinary opportunities and significant challenges.” 

The Arizona senator issued a warning about meme coins, which are cryptocurrencies inspired by internet memes or trends and are typically volatile in nature.

“The growth of things like meme coins on everything from Trump to DOGE to Peanut the Squirrel are about flashy headlines and trending on social media, and they’re not about helping traditionally un- and under-banked communities gaining access to the financial system,” he said.

There’s been a large push in Washington toward regulatory changes that could benefit the crypto sector. Republicans in particular are pushing to deliver on President Donald Trump’s pledge to turn the United States into the “crypto capital of the planet.”

The renewed effort comes amid a major fundraising splash in the 2024 election by top crypto firms that dumped millions of dollars into the campaigns of candidates who were more accomodating to the industry, including Gallego. The embrace of the sector also comes after years of hostility from the Biden administration, with many in the industry specifically accusing the leader of the SEC at the time, Gary Gensler, of unfairly targeting it. 

The hearing featured the testimony of Lewis Cohen, Partner at Cahill Gordon & Reindell LLP, Jonathan Jachym, deputy general counsel and global head of policy and government relations at Kraken, Jai Massari, chief legal officer at Lightspark, and Timothy Massad, a research fellow and director of digital assets policy project at Harvard University.

Massad voiced some concerns with Lummis’s current legislation, pointing out that it is softer than European regulations and a proposal in the House. He also said the bill does not address bankruptcy or apply to offshore issuers. 

He advised Congress to work on stablecoin legislation first and to defer considerations of market structure legislation for several years.

Democrats could be headed toward a clash over cryptocurrency policy, as they face the Senate Banking Committee’s most outspoken member on financial policy, ranking member Sen. Elizabeth Warren (D-MA). Warren has staunchly opposed industry-backed legislation in the past and has pushed for a regulatory crackdown. 

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She continues to warn that the industry presents financial risks and has called for digital assets to be subject to more stringent anti-money laundering standards. However, a number of pro-crypto Democratic senators on the panel are beginning to signal they may be willing to support the legislation. Banking Committee Chairman Tim Scott (R-SC) hopes to mark up Lummis’s legislation in the near future, according to a source familiar with the matter.

Crypto is used by a small fraction of the U.S. population. A Federal Reserve study released last year found that only 7% bought or held crypto in 2023. However, some newer opinion polls have seen more of an upward trend.