As the cryptocurrency industry celebrates what some Republican lawmakers are calling “Crypto Week,” concerns are rising among financial transparency and consumer advocates regarding the adequacy of newly proposed regulations.
In a recent bipartisan effort, the House approved a series of bills aimed at regulating digital currencies, with the Guiding and Establishing National Innovation for U.S. Stablecoins, specifically known as the GENIUS Act, poised to head to President Donald Trump’s desk.
Passed with bipartisan support last week, the GENIUS Act sets federal standards for stablecoins, which are cryptocurrencies designed to maintain a stable value by being pegged to traditional assets like the U.S. dollar or the Euro.
Under the provisions of this new legislation, entities authorized to issue payment stablecoins must maintain reserves equivalent to every dollar of stablecoins in circulation.
Permitted reserves encompass insured bank deposits, short-term U.S. Treasury bills, central bank reserves, and other government-issued assets approved by regulators.
Additionally, in case of bankruptcy, holders of stablecoins would be prioritized over all other claims against the issuer.
Notably, the legislation specifies that stablecoins are not classified as commodities or securities, thus exempting them from associated regulations, and it affirms that these digital assets lack federal insurance.
However, significant gaps have been identified, particularly regarding the secondary market, where no regulations appear to exist.
In a statement, Scott Greytak from Transparency International highlighted this loophole: “So it’s a pretty obvious loophole, a pretty obvious map for evading U.S. law.”
After the House’s vote, Republican Senator Bill Hagerty of Tennessee characterized the legislation as a pivotal moment for establishing the U.S. as the global epicenter of cryptocurrency innovation.
Last month, President Trump urged lawmakers on Truth Social to move “LIGHTNING FAST” on the bill, seeking prompt delivery to his desk without delays or modifications.
His endorsement of these regulations emerges amidst mounting reports of his family’s investments in various cryptocurrency ventures.
Proponents of the bills, including Republican Representative Mike Flood of Nebraska, expressed optimism that the new framework would open doors to a new era of digital asset innovation in the United States.
In stark contrast, opponents such as Michigan Democrat Representative Rashida Tlaib cautioned that allowing private companies to issue dollar-backed stablecoins could introduce a new form of shadow banking, risking taxpayer-funded bailouts similar to those that followed the 2008 financial crisis.
Moreover, tech giants like Walmart and Amazon have also been mentioned in discussions about launching their own stablecoins, raising potential concerns regarding competition and vendor relations.
Critics of the GENIUS Act have particularly pointed to the possibility of foreign stablecoins, which pose unique regulatory challenges.
The legislation has faced scrutiny for its lack of provisions that might prevent money laundering and enforcement against sanction evaders, especially concerning stablecoins issued by companies based abroad, like Tether.
These foreign-issued stablecoins could seep into the U.S. market through secondary channels like peer-to-peer transfers, complicating enforcement of the law.
Scott Greytak elaborated, “If you’re selling a stablecoin through Tether directly to somebody in the United States, they’re going to be covered by this law. But what if an American goes to Mexico or the British Virgin Islands, stocks up on crypto, and then sells it in the U.S.? That’s the secondary market, and it’s totally unregulated by any of these bills.”
To address these concerns, Transparency International and other advocacy groups have urged Congress to broaden the definition of stablecoin issuers to encompass secondary channels.
Greytak suggested a straightforward approach: “If you are issuing a stablecoin directly or indirectly to someone in the United States, you should be covered by this law.”
In response to the passing legislation, Tether’s CEO Paolo Ardoino stated that the GENIUS Act marks a significant step towards establishing a definitive regulatory foundation for the U.S. digital asset industry.
Circle’s chief strategy officer, Dante Disparte, emphasized that the legislation indicates a commitment by the U.S. to lead in the regulation of dollar-backed stablecoins.
Another bill, known as the Digital Asset Market Clarity Act, was also approved by the House, creating a regulatory framework designating which cryptocurrencies would be classified as securities or commodities.
This regulatory clarity now awaits consideration in the Senate, which is expected to propose its own crypto market structure bill.
However, critics have expressed that the Clarity Act falls short in providing robust compliance mechanisms.
Mark Hays, from the Americans for Financial Reform, condemned the model adopted by many crypto platforms that combines functions often performed by separately regulated entities in traditional financial markets, encouraging potential conflicts of interest.
Hays noted, “That model invites double dealing, front-running of their clients, and conflicts of interest.”
Amanda Fischer, policy director at Better Markets and a former SEC chief of staff, critiqued the Clarity Act for being too accommodating to the crypto industry.
She remarked, “It codifies existing business models of crypto companies that may suffice for market offerings but do not align with established securities laws.”
Fischer elaborated on the implications, saying that they weaken regulations around insider trading and market manipulation.
The potential for conflict of interest was underscored, with Fischer illustrating how, in contrast to traditional markets, crypto exchanges like Coinbase may maintain affiliated venture funds while simultaneously listing those very companies on their platforms.
Movements surrounding cryptocurrencies have also prompted discussions regarding the regulation of a third bill, the Anti-CBDC Surveillance State Act.
This legislation, which passed by a narrower margin, aims to prevent the U.S. Federal Reserve from issuing a digital currency.
House Majority Whip Tom Emmer backed the bill, asserting that it ensures the Fed will not surveil or restrict Americans’ purchasing behaviors.
Globally, dozens of countries including France, Brazil, China, Australia, and India have initiated pilots for Central Bank Digital Currency (CBDC) programs to facilitate various financial transactions, which further amplifies discussions around the U.S. regulatory approach.
Consumer advocates and crypto experts have highlighted an array of deficiencies in these newly proposed regulations, particularly in terms of consumer protection.
This concern is further amplified by President Trump’s proposed funding cuts to the Consumer Financial Protection Bureau (CFPB), an agency established to safeguard consumers’ interests, particularly in the wake of the 2008 financial crisis.
Aleks Ring from Operation Shamrock pointed out, “In the GENIUS Act, CFPB is not even mentioned—an agency whose sole purpose is protecting consumers.”
Questions surrounding the effectiveness of anti-money laundering measures and illicit financing regulations permeate the discussion, especially with regard to foreign businesses.
Ring, a forensic accountant experienced in tracing crypto transactions linked to scams, confirmed that a significant majority of her cases involve international elements.
Scammers are increasingly drawn to cryptocurrencies due to their speed, ease of use, and the difficulty of recovering funds even when transactions are traceable.
Unlike traditional wire transfers, which banks can sometimes reverse with law enforcement intervention, crypto transactions are generally irreversible, making recovery efforts challenging.
Ring emphasized that scammers often exploit platforms tailored for anonymity, facilitating quick fund transfers that become harder to trace once sent.
In the FBI’s most recent Internet Crime Report, nearly 150,000 financial fraud complaints were linked to crypto scams in 2024, totaling around $9.3 billion in reported losses.
In addition to regulatory improvements, Jorij Abraham, managing director of the Global Anti-Scam Alliance, advocates for enhanced collaboration among platforms often preyed upon by scammers.
He emphasized the importance of raising public awareness and highlighted that the broad ability to set up online services and launder money remains a significant issue.
Abraham praised certain sectors, like online dating, for investing heavily in fraud prevention, showcasing proactive measures in identifying suspicious behaviors.
However, he pointed out that the incentive structures within some crypto platforms can discourage efforts to prevent scams, saying, “With some crypto platforms, more transactions just mean more money.”
image source from：icij
