Authors: Jasper Goodman, Michael Stratford, Declan Harty
Compiled by: Deep Tide TechFlow
Powerful Wall Street groups are attempting to block some Republican proposals aimed at promoting the cryptocurrency industry.
The significant campaign contributions from cryptocurrency executives for the 2024 elections have had a profound impact on the banking industry.| Saul Loeb/AFP via Getty Images
The financial sector is embroiled in a lobbying civil war in Washington.
The conflict between cryptocurrency companies and banks and other Wall Street firms is intensifying, primarily centered around new digital asset rules pushed by Republican leaders. This conflict is expected to peak when Congress reconvenes after its August recess.
With President Donald Trump back in the White House, the cryptocurrency industry has achieved a series of lobbying victories, including the first legislative reforms to regulate digital assets. Now, Republicans in Congress are preparing to pass a second, larger bill to promote the growth of the crypto market, while Wall Street groups are starting to slow down, warning that certain crypto-friendly reforms could disrupt their businesses and threaten financial stability.
Some banks are concerned that lending institutions may face deposit outflows as customers may shift to less regulated cryptocurrency products.
But the struggle is not confined to Congress. It has also spread to some of the more obscure corners of financial policy. For example, banking groups are trying to prevent cryptocurrency companies from obtaining national bank charters. Meanwhile, executives from the cryptocurrency industry are lobbying the White House to retain the ban on banks charging fees for customer data access. At the same time, some traditional financial companies are warning Wall Street regulators that they are trying to make stock trading look more like cryptocurrency.
'Change is always difficult, especially for those who have already achieved success and are entrenched in the organization, who will always feel a bit uneasy about seismic shifts,' said Dan Zinn, general counsel of OTC Markets, which operates trading systems. 'This will definitely keep everyone on their toes, whether out of a bit of fear or a bit of excitement.'
This conflict highlights the significant changes in lobbying dynamics around financial policy as Washington begins to embrace the cryptocurrency industry in recent months. The right's enthusiasm for the crypto industry has poured hundreds of millions into influence efforts in Washington, sometimes surpassing the interests of traditional financial companies, which typically align with most of the Republican financial policy agenda.
This month, the lobbying struggle escalated, with the banking industry association calling on lawmakers to retroactively amend a signed crypto law passed by Congress in July, drawing strong opposition from the crypto industry. (House Republicans are also pushing for retroactive changes to the bill after opting to accept the Senate version.)
For a long time, bankers have been skeptical of cryptocurrencies. Industry leaders, including JPMorgan CEO Jamie Dimon, have previously scoffed at digital assets, and their Washington agenda has long diverged from the goals of digital asset companies.
'This is a turf battle that has been going on for years, and frankly, so far, we have not been able to achieve any regulatory clarity,' said Ohio Republican Congressman Warren Davidson, who has long been an ally of the crypto industry.
But for months, major industry associations representing the banking sector have offered only lukewarm public criticism of the rapidly developing Republican legislation aimed at legitimizing digital asset regulation.
They have become more outspoken after Trump signed a significant bill last month establishing new rules for so-called stablecoins (cryptocurrencies pegged to the dollar). Groups like the American Bankers Association are now urging senators to amend stablecoin legislation when they consider a second, larger cryptocurrency market structure bill next month. They aim to prevent all crypto companies from paying interest to customers holding stablecoins and to repeal what they call the legal provisions allowing state-chartered uninsured deposit institutions to operate nationwide without proper oversight.
This concern is particularly evident for small banks, which indicate that they may suffer losses as customers withdraw funds and deposit them into crypto products like stablecoins.
'It feels like there is a movement to replace us,' said Christopher Williston, president and CEO of the Texas Independent Bankers Association, the only major banking group to publicly oppose the stablecoin bill.
Williston stated that the stablecoin legislation known as the (Genius Act) poses a 'fundamental threat to bank deposits' for small lending institutions. He further added that this new legislation is like a 'thousand and first cut' after the 15 years of regulatory burdens brought about by reforms following the 2008 financial crisis.
Cryptocurrency companies that have long lobbied for stablecoin legislation insist that this matter has been settled.
Summer Mersinger, CEO of the leading industry trade group Blockchain Association, stated that the (Genius Act) 'is an established law.' 'Congress had vigorous debates about this, and the passage of this bill is a compromise by policymakers. So, we really should not try to go back and rehash this issue.'
Paige Pidano Paridon, executive vice president of the Bank Policy Institute representing large banks, stated that the organization wants to work with the crypto industry to establish 'clear and fair rules.'
She said, 'This is not a battle between banks and cryptocurrencies, but a joint effort to create rules that work for everyone while protecting consumers and the financial system. The U.S. financial system is built on trust, and when ordinary consumers cannot distinguish between safe and unsafe, risks increase, and America's competitiveness suffers.'
At the U.S. Securities and Exchange Commission (SEC), traditional financial institutions have been urging Wall Street regulators to proceed cautiously as the agency considers requests from the cryptocurrency industry for 'tokenization of U.S. stocks.' Tokenization refers to placing such assets on the same blockchain as crypto tokens like Bitcoin and Ether.
Supporters argue that tokenization will help speed up stock trading and reduce costs globally. However, institutions like the Securities Industry and Financial Markets Association and trading giant Citadel Securities, backed by Republican mega-donor Ken Griffin, believe that tokenized stocks should follow the same rules as the thousands of traditional stocks currently traded. Lobbyists expect the tokenization debate to play a role in upcoming congressional discussions on a market structure bill that will delineate cryptocurrency regulatory authority among market regulators. Senate Republicans have vowed to pass this bill this fall.
Admittedly, the banking industry's influence in Washington has not diminished, as CEOs of large banks still win victories during Oval Office meetings, and lending institutions benefit from the Republican agenda of comprehensive deregulation. Some traditional financial sector insiders are also beginning to favor the prospects of cryptocurrencies.
Meanwhile, the banking industry is navigating a political landscape shaped by the significant campaign contributions from cryptocurrency executives in the last election—again hopeful for the upcoming midterm elections. Cryptocurrencies are a top policy priority for the White House and Trump, whose family has invested in several cryptocurrency firms.
These dynamics have made the industry a powerful force. At the Consumer Financial Protection Bureau, executives from the cryptocurrency industry successfully lobbied the Trump administration to abandon efforts to partner with large banks to repeal the 'open banking' rules governing consumer data sharing established during the Biden era.
The policy prohibits banks from charging for access to this data, while fintech companies and cryptocurrency firms use this data to support their services and facilitate customer account openings and fund transfers. After cryptocurrency executives joined forces with fintech companies for intervention, the Consumer Financial Protection Bureau (CFPB) is now reconsidering this rule instead of abolishing it outright.
'Banks are still respected,' Davidson said, adding that Republicans have worked with the banking industry to roll back some regulations enacted after 2008. 'But frankly, banks have enjoyed benefits in other areas that have, in many ways, shielded them from market impacts.'
