US Senate Crypto Legislation Faces Delay Amid Jurisdictional Disputes

Executive Summary

Progress on comprehensive virtual asset market structure legislation within the U.S. Senate has reached an impasse, leading analysts to project a potential delay in passage until after the midterm elections. This delay is primarily attributed to ongoing disputes between Republican and Democratic lawmakers concerning regulatory jurisdiction and the specifics of proposed frameworks for the cryptocurrency industry.

The Event in Detail

Discussions surrounding the U.S. Senate's virtual asset market-structure bill have stalled due to significant disagreements between the Republican and Democratic parties. Crypto-focused outlet The Block, referencing analysis from TD Cowen, indicated that senators have "more reasons to delay than to hurry," suggesting a postponement of the bill until after the midterm elections. Key points of contention include the delineation of regulatory authority between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), as well as the establishment of an 'ancillary asset' rule to define non-security assets within the crypto space. Republicans are actively pursuing legislation to clarify these jurisdictional boundaries.

Conversely, Democrats recently introduced proposals aimed at preventing illicit activities in Decentralized Finance (DeFi). One such proposal, the Compliant Operations of Decentralized Entities (CODE) Act of 2025, sought to combat illicit finance and cybersecurity risks in DeFi through public-private partnerships. However, a counter-proposal from Senate Democrats suggesting a Treasury Department "restricted list" for risky DeFi protocols, coupled with Know Your Customer (KYC) rules for non-custodial wallets and the potential penalization of U.S. nationals using restricted protocols, met with strong opposition from Republicans and the industry. Republican staff suspended all crypto talks after receiving this offer, characterizing it as incoherent and a bad-faith negotiation attempt.

Market Implications

The prolonged regulatory uncertainty in the U.S. is creating a cautious market sentiment, hindering institutional adoption and potentially impeding overall market stability. For instance, Basel Medical Group reportedly paused plans to acquire 10,000 Bitcoin due to the unclear regulatory environment. This reflects a broader trend among institutional players, where fragmented oversight and "regulation by enforcement" — characterized by attacking crypto companies with lawsuits rather than clear rules — contribute to operational risks and compliance costs. The absence of a stable regulatory framework poses a greater barrier to institutional investment than typical market volatility or technological challenges. The current situation suggests that, short-term, such delays signify continued ambiguity, while long-term, eventual clear legislation could foster innovation and investor confidence.

Expert Commentary

Jaret Seiberg, an analyst, highlighted that "political calculations are a bigger variable than superficial procedural disagreements," underscoring that "procedural issues are not the real obstacle. It's simply a signal that senators do not want to rush." Seiberg projected that while agreement within the next 12 months is not impossible, rapid progress is unlikely given the Senate's schedule and election campaigns. Crypto lawyer Jake Chervinsky described the Democratic counter-proposal on DeFi as a potential "unprecedented, unconstitutional government takeover of an entire industry" that could effectively ban, rather than regulate, the sector, possibly eliminating any chance for a structured crypto market framework.

Broader Context

The U.S. regulatory landscape for virtual assets has been marked by overlapping and conflicting guidelines between the SEC and CFTC, creating a complex web of authority. The industry has consistently advocated for clear legislation, particularly for stablecoins, to keep pace with other jurisdictions. While potential political shifts, such as a Republican majority in the White House and Congress, could present a more promising pathway for crypto legislation, consensus remains challenging due to narrow majorities and upcoming elections. The current impasse highlights the critical need for a clear and comprehensive legislative framework to support the growth and innovation of the Web3 ecosystem and provide certainty for corporate adoption trends and investor sentiment. Without such clarity, the U.S. risks falling behind in the global digital asset landscape.