Inaugural Hearing of the Senate Banking Subcommittee on Digital Assets: Comprehensive Review of February 26, 2025

The first hearing of the Senate Banking Subcommittee on Digital Assets, chaired by Senator Cynthia Lummis (R-WY), marked a pivotal moment in U.S. legislative efforts to establish a regulatory framework for digital assets. Held on February 26, 2025, the hearing titled “Exploring Bipartisan Legislative Frameworks for Digital Assets” focused on advancing stablecoin legislation, addressing market structure challenges, and reconciling jurisdictional tensions between regulatory agencies. Witnesses from academia, industry, and legal practice emphasized the urgency of congressional action to prevent regulatory overreach, protect consumers, and maintain U.S. leadership in financial innovation. Key themes included the prioritization of stablecoin regulation under the GENIUS Act, debates over interest-bearing stablecoins, and the need to distinguish securities from commodities in digital asset markets.

Establishment of the Subcommittee and Legislative Context

Formation and Mandate

The Senate Banking Subcommittee on Digital Assets was created in January 2025 as part of broader congressional efforts to address regulatory gaps in the cryptocurrency sector. Senator Lummis, a longtime advocate for Bitcoin and blockchain innovation, was appointed chair by Senate Banking Committee Chairman Tim Scott (R-SC). The subcommittee’s dual mandate includes:

1. Legislative Development: Crafting bipartisan bills to govern stablecoins, market structure, and anti-debanking protections.
2. Oversight: Investigating federal regulators’ alleged misuse of “Operation Chokepoint 2.0” tactics to restrict banking access for crypto firms.

Lummis framed the subcommittee’s mission as critical to countering the Biden administration’s “hostile approach” to digital assets, which she argued pushed innovation offshore and undermined the dollar’s dominance. The hearing on February 26 represented the first step in fulfilling this mandate, with a focus on reconciling the House-passed FIT21 Act with Senate proposals like the Responsible Financial Innovation Act.

Hearing Structure and Key Participants

Opening Statements: Bipartisan Priorities

Senator Lummis opened the hearing by reflecting on the Senate’s evolving understanding of digital assets since her election in 2020:

“We have come a long way since many members of this body were still trying to wrap their heads around what a Bitcoin is, what a stablecoin is, and why the Howey test is important… We are on the precipice of finally creating a bipartisan legislative framework for both stablecoins and market structure.”

She identified two immediate priorities:

1. Stablecoin Legislation: Markup of the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins), co-sponsored with Senators Tim Scott (R-SC) and Kirsten Gillibrand (D-NY). The bill aims to standardize reserve requirements and ensure redeemability during issuer bankruptcies.
2. Market Structure Reform: Aligning Senate proposals with the House’s FIT21 Act to clarify the SEC and CFTC’s roles in overseeing digital asset exchanges.

Ranking Member Ruben Gallego (D-AZ) struck a cautionary tone, emphasizing consumer protection and skepticism toward speculative assets like memecoins:

“The United States must lead in this space, but inclusion cannot come at the expense of security. Memecoins are not about inclusion—they’re about exploitation.”

Witness Testimonies: Expert Perspectives

Jai Massari (Chief Legal Officer, Lightspark)

Massari argued that stablecoin legislation must prioritize reserve transparency and holder ownership:

“Stablecoins should compete on utility, not structural loopholes. If a stablecoin issuer goes bankrupt, holders must have first claim on reserves—not creditors.”

She endorsed the GENIUS Act’s requirement for 100% reserve backing but cautioned against allowing interest-bearing stablecoins, which could blur lines with securities.

Jonathan Jachym (Global Head of Policy, Kraken)

Jachym highlighted regulatory fragmentation as a barrier to U.S. competitiveness:

“Ninety percent of stablecoin transactions occur on centralized exchanges, yet we lack even basic rules for these platforms. The CFTC should oversee spot markets, while the SEC focuses on investment contracts.”
He praised Wyoming’s crypto-friendly laws as a model for federal policy.

Timothy Massad (Former CFTC Chair)

Massad urged incrementalism, advising Congress to defer market structure legislation and let the SEC’s new crypto task force establish guidelines:

“We should allow the SEC’s initiatives to mature before rewriting securities laws. Stablecoins are the low-hanging fruit—get that right first.”
He criticized the Strategic Bitcoin Reserve proposal as unnecessary fiscal risk.

Lewis Cohen (Partner, Cahill Gordon & Reindel)

Cohen addressed legal ambiguities in secondary token markets:

“Once a token is issued, who ensures compliance with AML or securities laws? The issuer might vanish, but the token lives on. The Lummis-Gillibrand Act’s asset classification framework is essential here.”

Legislative and Regulatory Debates

Stablecoins: The GENIUS Act vs. House Alternatives

The hearing centered on the GENIUS Act’s provisions to:

• Mandate 1:1 reserve backing with U.S. Treasuries or cash equivalents.
• Prohibit interest payments to avoid securities classification.
• Grant state and federal regulators dual oversight.

Critics, including Massad, contrasted the bill with the House’s McHenry-Waters proposal, which allows interest-bearing stablecoins under SEC scrutiny. Senator Lummis defended the GENIUS Act’s stricter approach:

“Interest-bearing stablecoins would create a shadow banking system. We can’t let crypto become the next subprime crisis.”

Market Structure: Defining Securities vs. Commodities

A recurring theme was the lack of clarity around which tokens qualify as securities. Cohen emphasized the Howey test’s limitations:

“The Howey test works when there’s an identifiable issuer making ongoing promises. But what about decentralized protocols where the founders walk away?”
Witnesses broadly supported the Lummis-Gillibrand framework, which would classify tokens as commodities if their networks are sufficiently decentralized.

Jurisdictional Models: EU’s MiCA vs. Wyoming’s Innovation

Participants debated whether the U.S. should emulate the EU’s Markets in Crypto-Assets Regulation (MiCA) or adopt state-led models. Massad endorsed MiCA’s comprehensive rules, while Jachym advocated for Wyoming’s tailored licensure system. Senator Lummis signaled openness to hybrid approaches but stressed:

“Our goal is a federal framework that doesn’t stifle states like Wyoming that are already leading.”

Political Dynamics and Partisan Tensions

Republican Priorities: Strategic Bitcoin Reserves and Debanking

Republicans, including Senator J.D. Vance (R-OH), linked digital asset policy to broader economic sovereignty:

“A strategic Bitcoin reserve would hedge against dollar devaluation and counter China’s digital yuan.”
Others, like Senator Dave McCormick (R-PA), tied crypto innovation to job creation:
“Blockchain can revive manufacturing towns. Let’s make Pennsylvania the next crypto hub.”

Democratic Concerns: Consumer Protection and Systemic Risk

Democrats focused on investor risks, with Senator Elizabeth Warren (D-MA) submitting written questions about stablecoin-driven bank runs. Senator Gallego warned:

“Without strict reserve rules, stablecoins could become the next money market crisis.”

Conclusion and Next Steps

The hearing concluded with bipartisan agreement on advancing stablecoin legislation but lingering disputes over market structure. Immediate next steps include:

1. Markup of the GENIUS Act: Scheduled for March 2025, with amendments expected on interest payments and state preemption.
2. Oversight Hearings: The subcommittee will scrutinize the Federal Reserve’s role in “Operation Chokepoint 2.0” debanking practices.
3. SEC/CFTC Coordination: Senator Lummis pledged to reconcile the SEC’s enforcement-focused approach with the CFTC’s market oversight.

As Senator Lummis noted in her closing remarks:

“This isn’t about crypto—it’s about maintaining American leadership in a digital future. We’ll get this done.”

The subcommittee’s ability to bridge partisan divides will determine whether 2025 becomes the year U.S. crypto regulation transitions from hostility to clarity.

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