'Trillions' in institutional money held up by crypto bill delay
White House digital asset adviser Patrick Witt claims that the delay in passing the CLARITY Act is holding up a windfall of institutional money from being deployed into the crypto markets.
"There are trillions of dollars in institutional capital on the sidelines waiting to get into this space," Witt said in a post on X. "Regulatory clarity is the unlock."
In an interview with Yahoo Finance, Witt reiterated the fact that the issue of stablecoin rewards and yield remains the major sticking point that is dividing the banking and crypto industries, adding that "it's unfortunate that this has become such a big issue because ultimately this is not the stablecoin bill, that was the GENIUS Act."
Whereas the GENIUS Act established the first legislation regulating stablecoins in the US, the CLARITY Act will provide legislation around the broader crypto market infrastructure.
"We've heard from senators on both sides of the aisle concerns about potential deposit flight from stablecoins on different platforms," Witt said. "And so what we've encouraged both sides to do is let's find a middle ground, let's use a scalpel to address this narrow issue of 'idle yield,' let's call it."
He added that it was important not to "take a chainsaw to this, let's not let this derail the bill."
Bank lobbyists point to a report issued in April by the US Treasury Department estimating that stablecoin yields could lead to $6.6 trillion in banking deposit outflows.
Because the GENIUS Act prohibits stablecoin issuers from offering interest on the assets, crypto companies are instead offering investors “rewards” on their stablecoin holdings.
However, the banking industry has called this an “interest loophole” that the crypto industry is attempting to use to get around the prohibition in the legislation.
Middle ground has become elusive
But the crypto industry has pushed back on the concerns over a "deposit flight" that could happen to banks because of stablecoin rewards.
Paul Grewal, chief legal officer for Coinbase Global (COIN), expressed appreciation for a recent opinion piece written by Reuters' Stephen Gandel that called the banking industry's deposit concerns a "flawed" argument.
But Grewal added in a post on X that the only thing Gandel's piece failed to do was "to call out the fake 'Treasury' study on deposit flight that is in fact a bank industry push piece."
Coinbase has of course been the most prominent holdout on the CLARITY Act, drawing the ire of Treasury Secretary Scott Bessent, who last week blamed the delay in passing the crypto legislation on "a few recalcitrant actors who said, 'well, it's better to have no legislation than the legislation we don't want,'" making a clear reference to the crypto giant.
On Friday, Coinbase CEO Brian Armstrong reiterated his stance on the stablecoin rewards issue, showing that a compromise still seems no closer to happening.
"Ironically, if a crypto rewards ban went into law, it would make us more profitable since we payout large amounts in rewards to our customers holding USDC," he said in a post on X. "But we don’t want this to happen, it’s better for customers to get rewards, and it’s better for the US to keep regulated stablecoins competitive on a global stage."
Witt did not offer a potential solution that could break the stalemate between the banking and crypto industries, so it's unclear how the CLARITY Act will ultimately move forward unless Coinbase and others in the digital asset space agree to a ban on stablecoin rewards.
Nonetheless Armstrong said during Coinbase's earnings call last week that he is "actually quite optimistic" that the CLARITY Act will get passed in the next few months.
"I think there's an opportunity to make a win-win outcome here for everyone, for banks and crypto companies, and the US citizens and everyone," he said.
From Coinbase's perspective, this means ensuring "that there's not any kind of protectionism happening for incumbents" because "we just want to have a good level playing field," Armstrong said.