In a dramatic turn that caught Washington off guard, Coinbase Global Inc. (NASDAQ:COIN) CEO Brian Armstrong pulled his company’s support for the Senate Banking Committee’s crypto market structure bill late Wednesday evening, less than 24 hours before lawmakers were set to vote on the legislation.

The withdrawal forced the committee to postpone Thursday’s markup indefinitely, dealing a significant blow to what many had hoped would be landmark legislation establishing regulatory clarity for digital assets in the United States. The revised markup is now scheduled for the final week of January, though industry observers are skeptical that the fundamental disputes can be resolved by then.

The Stablecoin Rewards Battle That Broke The Deal

At the heart of Armstrong’s objections lies a contentious provision that would effectively eliminate stablecoin rewards for users who simply hold these digital dollars in their accounts. The bill, released Monday night after months of closed-door negotiations, contains language that would prohibit crypto platforms from paying yield on idle stablecoin balances, a restriction that doesn’t apply to traditional banks offering interest on dollar deposits.

According to reports from Bloomberg and industry sources, this provision emerged from aggressive lobbying by Wall Street banks concerned that crypto companies offering attractive stablecoin yields could siphon deposits away from the traditional banking system. The restriction would allow rewards only when tied to specific activities like transactions, payments, or providing liquidity in decentralized finance protocols.

For Coinbase Global, which has made stablecoin products a cornerstone of its “Everything Exchange” strategy, the provision represents an existential threat dressed up as consumer protection. Armstrong didn’t mince words in his assessment, posting on X that the bill would allow traditional banks to “ban their competition” rather than compete on innovation.

The company’s stock has remained relatively stable despite the regulatory uncertainty, trading around $252 as of Wednesday’s close, though down from its July 2025 high of $444.

Beyond Stablecoins: Armstrong’s Other Red Lines

While stablecoin rewards dominated headlines, Armstrong’s withdrawal letter cited 3 additional deal-breakers that emerged from the 270-page bill released just days before the scheduled vote.

Tokenized Securities Ban: The legislation would effectively prohibit on-chain versions of stocks and other real-world assets, directly undermining Coinbase’s publicly stated plans to expand into tokenized equities trading in 2026. This collision between the bill’s restrictions and the company’s strategic roadmap made supporting the legislation untenable.

DeFi Surveillance Expansion: Armstrong warned that provisions related to decentralized finance would represent the most significant expansion of government financial surveillance power since the 2001 USA Patriot Act. The language could grant authorities unprecedented access to users’ transaction data under the guise of combating illicit finance, a characterization that resonated with privacy advocates but drew pushback from lawmakers focused on anti-money laundering efforts.

Regulatory Turf War: The bill would shift significant oversight authority from the Commodity Futures Trading Commission to the Securities and Exchange Commission, a move that concerns the broader crypto industry given the SEC’s historically aggressive enforcement approach under previous leadership. While the incoming Trump administration is expected to take a more innovation-friendly stance, cementing expanded SEC authority in statute creates lasting structural concerns.

Political Complications Add Another Layer

The bill’s troubles extended beyond industry opposition. According to multiple reports, the White House rejected certain ethics provisions because they could affect President Trump’s family financial interests in the crypto sector. Senate Banking Committee Chair Tim Scott responded that ethics matters fall under a different committee’s jurisdiction, but the public disagreement highlighted the complex political dynamics at play.

Democrats on the committee had pressed for stronger ethics provisions to prevent senior government officials from personally profiting from crypto-related activities. The partisan tension around this issue, combined with Chairman Scott’s inability to secure unanimous Republican support on his own committee, signaled that building a coalition capable of passing comprehensive crypto legislation remains extraordinarily challenging.

The Industry Splinters

Perhaps most telling about the bill’s prospects is how the crypto industry itself has fractured in response to Armstrong’s withdrawal. Rather than rallying around Coinbase’s position, several major players rushed to defend the legislation.

Ripple CEO Brad Garlinghouse expressed optimism that issues could be resolved through the markup process, stating the company remains “at the table” for continued negotiations. Kraken co-CEO Arjun Sethi similarly emphasized that disagreement over specific provisions is normal in complex legislation, noting that the final negotiation stage remains critical.

The Digital Chamber, a prominent crypto advocacy organization, strongly supported advancing the bill despite its flaws. CEO Cody Carbone stressed the importance of continued engagement with lawmakers to refine the legislation rather than starting from scratch.

This split response suggests Coinbase’s withdrawal may function as much as a negotiation tactic as a principled stand, a high-stakes gambit designed to force more favorable terms before the industry commits its full support.

What The Market Is Missing

Analysts at TD Cowen warned that Armstrong’s withdrawal likely derails the market structure legislation in the current congressional session, a development they characterized as negative for crypto companies and positive for traditional banks. The assessment reflects growing skepticism that the fragile coalition pushing for regulatory reform can survive this setback.

However, that analysis may be premature. The delay actually creates space for more substantive negotiations that were impossible under the compressed timeline between Monday’s bill release and Thursday’s planned vote. Multiple sources close to the negotiations suggest that key senators remain committed to finding compromise language on stablecoin rewards that doesn’t simply hand incumbent banks a competitive moat.

The crypto industry also retains significant political leverage. With President Trump having made crypto-friendly policies a campaign priority and Republicans controlling both chambers of Congress, the pressure to deliver regulatory clarity remains intense. A failed bill would represent a significant political embarrassment for congressional leadership.

The Bigger Picture For Bitcoin And The Industry

While the regulatory drama plays out in Washington, Bitcoin (CRYPTO: BTC) has shown remarkable resilience, briefly topping $97,000 this week as on-chain data reveals significant accumulation by addresses holding between 100 and 10,000 BTC. The divergence between regulatory uncertainty and market strength suggests that crypto markets have partially priced in ongoing political volatility.

For Coinbase Global, the stakes extend far beyond a single piece of legislation. The company’s ambitious expansion into tokenized securities, prediction markets, and enhanced stablecoin products depends on regulatory frameworks that treat innovation as an opportunity rather than a threat. By drawing a clear line in the sand, Armstrong is gambling that lawmakers will prove more willing to compromise than to see their entire regulatory effort collapse.

The gamble carries real risks. Each day that U.S. regulatory uncertainty persists, competitor jurisdictions from Singapore to the European Union gain ground in attracting crypto innovation and capital. The window for American leadership in digital asset regulation, while still open, narrows with every failed negotiation.

Where Things Stand Now

Senate Banking Committee Chair Tim Scott issued a statement emphasizing that all parties remain engaged in good faith negotiations, with a revised markup scheduled for late January. The Senate Agriculture Committee, which must advance parallel legislation addressing CFTC oversight, has similarly delayed its markup to allow more time for consensus-building.

Industry leaders are attempting to project cautious optimism. Blockchain Association CEO Summer Mersinger described the delay as an opportunity for reassessment rather than failure, noting that complex policy areas often require additional time for refinement. That perspective reflects a longer-term view that regulatory clarity will eventually emerge, even if the timeline has slipped.

The Path Forward Remains Uncertain

What happens next depends on whether the key stakeholders (Coinbase Global, traditional banks, congressional leadership, and the broader crypto industry) can find common ground on stablecoin rewards and the other contentious provisions that derailed this week’s markup.

Early indications suggest some movement may be possible. Several senators have privately indicated willingness to consider compromise language that would allow stablecoin rewards under certain conditions, potentially tied to capital requirements or other safeguards that address traditional banks’ concerns without eliminating the products entirely.

Whether that proves sufficient to bring Armstrong and Coinbase back to the table remains unclear. The company has made its position unambiguous: better no bill than a bad bill. For an industry that has spent years demanding regulatory clarity, that’s a remarkable stance, and one that reflects just how high the stakes have become in the battle over digital asset regulation.

The coming weeks will reveal whether this week’s drama represents a temporary setback in an ongoing negotiation or the beginning of the end for comprehensive crypto legislation in the current Congress. Either way, Armstrong’s dramatic withdrawal has reset expectations and demonstrated that the path to regulatory clarity for digital assets remains far more challenging than optimists believed just days ago.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.