There’s still no bipartisan consensus on how the U.S. market should regulate digital assets, so blockchain advocates are lobbying Congress and the president to achieve more specific goals.
Now that we’re officially into the final month of 2025, all eyes turn to the U.S. Senate and its glacially slow progress in crafting a digital asset market structure bill that both parties can get behind. When we last left our senatorial heroes, they were aiming for mid-month markup sessions for the two committees (Banking and Agriculture) tasked with steering this ship to shore.
This week, Punchbowl News reported that the primary area of contention between the parties remains decentralized finance (DeFi). The GOP prefers a more laissez-faire approach, while the Dems keep pushing for stricter oversight and broader consumer protections (aka greater responsibility for DeFi developers should their platforms fail or be used for criminal purposes).
Punchbowl quoted Banking committee chair Tim Scott (R-SC) calling the technology “a paradigm-shifting experience that is embedded in market structure. And if you don’t have DeFi as a major part of it, then you really don’t have a need for a market structure. As I said to [Democrats], without DeFi, there is no market structure.”
The committee’s head of its digital assets subcommittee, Cynthia Lummis (R-WY), said the current impasse was down to “a couple of DeFi items.” But Scott said Dems’ issues amounted to “a long list of things that just includes DeFi.”
Ruben Gallego (D-AZ), the committee’s ranking member, agreed that the differences involved “more than a couple things out in DeFi,” citing the Dems’ push for ethics rules that target the lucrative crypto ventures benefitting President Trump and his family. But Gallego offered hopes for a mutually satisfactory resolution, insisting that the two sides had “a good working relationship.”
Lummis said she didn’t want the committee to hold a markup session absent a draft with which Dems were “comfortable.” But while Scott also wants “a bipartisan bill,” he signalled his willingness to plow ahead on a partisan basis if necessary, accusing the Democrats of “dragging this out.”
After this week, there are only two working weeks left on the Congressional calendar. On December 3, Crypto in America quoted Scott saying there is “a realistic path to having a markup on December the 17th or 18th in committee with the votes to get it done.” Banking has 24 members, and Scott said he believed he had all 13 GOP votes, plus “two or three already on the Democrat side who say they’re a yes.”
Whatever happens in the Banking committee, the Ag committee’s progress on its version of market structure is more opaque and more uncertain. One thing does seem definitive; the original plan for getting an approved bill on Trump’s desk by Christmas isn’t going to happen. And to all a good night.
SEC pumps brakes on ETF leverage
Under both committees’ market structure drafts, the Securities and Exchange Commission (SEC) will take a subordinate role to the Commodity Futures Trading Commission (CFTC) when it comes to digital asset oversight. Perhaps that’s why the SEC, under new chair Paul Atkins, has been so eager to declare so many aspects of blockchain technology to be beyond its purview.
But this week brought a rare moment of pushback from the SEC in the form of letters to nine issuers of exchange-traded funds (ETFs) warning them that the products they were proposing offered excessive leverage to customers.
In a letter to Direxion Shares ETF Trust—featuring language nearly identical to letters sent to rivals ProShares, Tidal, and others—the SEC expressed “concern regarding the registration of exchange-traded funds that seek to provide more than 200% (2x) leveraged exposure to underlying indices or securities.”
The SEC notes that Rule 18f-4 under the Investment Company Act of 1940 ensures that “an open-end fund’s Value-at-Risk (VaR) does not exceed 200% of the VaR of a designated reference portfolio.” The SEC is concerned that ETFs aren’t acknowledging the inherent volatility of the underlying assets, potentially opening up the possibility of disastrous ramifications for investors who invest without careful consideration.
The SEC essentially gave the issuers the chance to revise their products’ leverage downward or withdraw their applications. The letters were posted to the SEC site the same day they were issued, signalling the regulator’s desire to deter other issuers from seeking approvals for similar products.
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Tokenization talk
Elsewhere at the SEC, the deregulatory push remains a ‘full speed ahead’ affair, as evidenced during Thursday’s virtual public meeting of the SEC Investor Advisory Committee on the tokenization of equities. Atkins has called tokenization ‘job one’ for the SEC, and the plan has garnered support from nearly all digital asset operators as well as some traditional finance institutions.
But not all of the latter are on board. Citadel Securities, which previously expressed concern over the SEC’s tokenization push, sent the SEC a letter on December 2 urging the regulator not to grant “broad exemptive relief from the longstanding statutory definitions of an ‘exchange’ and ‘broker-dealer’ for those seeking to facilitate the trading of tokenized U.S. equities.”
Citadel sent a representative to Thursday’s SEC round table, which also featured representatives from the Coinbase (NASDAQ: COIN) exchange and others reflecting a mix of crypto/tradfi interests. To no one’s surprise, the meeting exposed a lack of consensus regarding how this process will unfold, but the tradfi types appear to be on the back foot, fighting a rearguard action against the blockchain barbarians storming the gates.
The tokenization train has already left the station in Europe, where Robinhood Markets (NASDAQ: HOOD) began offering tokenized equities this summer. On Thursday, the Kraken digital asset exchange announced it was “joining forces” with the Deutsche Börse Group (DBG) to combine “regulated infrastructure with crypto-native expertise to deliver frictionless institutional access,” encompassing “regulated crypto, tokenized markets and derivatives, as well as enhanced liquidity for institutional clients across geographies.”
The partners will also “enable the distribution of securities held in custody at [DBG’s post-trade services unit] Clearstream in a tokenized form to Kraken’s client base” and develop “advanced white-label solutions enabling banks, fintechs, and other financial institutions to offer secure, compliant crypto trading and custody services to clients across Europe and the U.S.”
Earlier this week, Kraken announced it had acquired Backed Finance AG, the company behind Kraken’s xStocks tokenized equities push. The DBG deal will see xStocks integrated within 360T, the DBG foreign-exchange trading subsidiary, “significantly expanding the reach of one of the most widely adopted tokenized equity standards globally.”
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Free the Samourais!
As Christmas gets closer, crypto advocacy groups are lobbying Congress and President Trump as to what presents they want to see under their trees.
On December 2, the Bitcoin Policy Institute (BPI) posted its argument for Trump issuing a pardon to the developers behind Samourai Wallet, the coin mixing service that was taken down by U.S. law enforcement in April 2024 for its open facilitation of laundering the digital proceeds of crime.
Last month, the two principal devs behind Samourai received lengthy prison terms after reaching a plea deal with prosecutors earlier this year. Co-founder William Lonergan Hill was handed a four-year sentence on November 19, a couple of weeks after co-founder Keonne Rodriguez got five years due to the judge’s view that Rodriguez wasn’t yet willing to accept he’d done anything wrong.
Also, not accepting the gravity of Samourai’s crimes is the BPI, which claims the devs didn’t openly encourage criminals and sanctions evaders to use their service. No, they merely “wrote and maintained software that allowed users to construct collaborative Bitcoin transactions in a privacy-preserving way.”
The BPI says the sentences have “already had a measurable chilling effect on developers working on privacy and security tools in the United States.” Pardoning the pair “would correct a clear misapplication of federal law, protect the integrity of longstanding distinctions in financial regulation, and reaffirm that publishing non-custodial software is not—and should not become—a criminal act.”
Trump recently pardoned an actual drug lord who once boasted of his plan to “shove the drugs right up the noses of the gringos,” so letting the Samourais walk no longer seems like a bridge too far. And since Trump’s pardon of Honduras’ ex-president may have been done at the behest of the tech/crypto bros who Hernandez helped establish their law-exempt city-state Prospera, it’s possible the Samourais may have prominent voices already lobbying Trump on their behalf behind the scenes.
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BTC is a swarm of (apparently helpless) cyber hornets
Meanwhile, the Digital Chamber sent a letter to multiple members of Congress on December 3 seeking their help in propping up Strategy (NASDAQ: MSTR), the Michael Saylor-led digital asset treasury (DAT) firm that’s fallen on hard times and could be set for an even harder, possibly fatal, fall in the new year.
In October, stock exchange index provider MSCI proposed delisting DATs due to their resemblance to investment funds, which MSCI excludes from index membership. Should MSCI delist DATs, analysts believe MSTR could see anywhere from $8 billion to $11.6 billion in outflows as investors transfer their financial affections to more promising opportunities.
MSTR has seriously struggled of late, its share price falling by more than one-half in the past six months. The company holds 650,000 BTC tokens, but these have proved more of a drag than a lift over the past two months, and MSTR has been forced to offer ever more lucrative incentives to raise funds to continue its BTC buying sprees.
MSCI is scheduled to announce its DAT decision on January 15, and Saylor told Reuters this week that MSTR is “engaging in” the consultation process. But with Saylor having carved out a role as BTC’s most vocal ambassador over the past two years, the whole sector fears what might happen should MSCI kick MSTR to the curb.
Enter The Digital Chamber, whose letter expresses “serious concern” regarding MSCI’s proposal, “given the influence that major index providers have over global capital allocation, investor exposure, and the structure of U.S. capital markets.”
The Chamber claims DATs aren’t function-free vessels for holding tokens that require investors to pay a premium to hold their shares rather than buy the underlying assets directly. No, they’re “operating businesses that provide software development, network validation services, custody and wallet infrastructure, compliance technology, payments solutions, and other essential functions that support the broader digital economy.”
As for why Congress should intervene in what should be a private business decision—the kind of intrusion on private enterprise the crypto bros traditionally oppose—it’s because “a change of this magnitude could alter the competitive landscape for U.S. companies engaged in digital asset activities.”
That, and the fact that most prominent digital assets are currently more flaccid than Kyle McLachlan’s Sex & The City character, requires immediate political action “to ensure that index construction practices remain transparent, economically grounded, and aligned with investor interests.”
The fear here is real, as MSTR/Saylor has for many, become the public face of BTC, and if MSTR’s share price falls low enough, Saylor could be forced to sell off some of its BTC to pay the dividends on its preferred stock offerings. That would undo his whole narrative, pouring gas on the dumpster fire that the whole ‘digital gold’ faction of the blockchain sector has become.
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Source: https://coingeek.com/us-market-structure-consensus-elusive-sec-limits-etf-leverage/
