The Breakdown - CBDC Fears Derail Stablecoin Bill

Episode Date: July 17, 2025

Crypto Week got off to a rocky start in Washington as internal GOP conflict—driven by fierce opposition to central bank digital currencies (CBDCs)—blocked a key procedural vote. NLW breaks down how the House Freedom Caucus derailed the crypto agenda over concerns about the Genius Act and its perceived lack of anti-CBDC protections. We explore what this means for the future of crypto legislation, Trump’s response, and whether the bills can still pass. Plus, NLW unpacks Bitwise CIO Matt Hougan’s case for why clear crypto rules could reduce risk—and why inflation data might complicate the Fed’s next move. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/@TheBreakdownBW Subscribe to the newsletter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://blockworks.co/newsletter/thebreakdown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownBW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Wednesday, July 16th, and today we are talking about Crypto Week's rough start. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. While friends, Crypto Week is off to a rocky start in Washington as the first procedural vote fails. Yesterday, House lawmakers voted 223 to 196 against a rule to allow the three crypto bills to move forward to a floor vote.

The agenda for the week is to finalize the Genius Act, which deals with stable coins, as well as move the market structure-focused Clarity Act and the Anti-CBDC Act to the Senate. Getting a procedural vote through the GOP-controlled House was supposed to be the easy part, but 13 Republicans voted against the rule to tank the agenda. The dissenting faction was the House Freedom Caucus, a group of hardline America-first lawmakers. Their key issue was CBDCs, with the group forming the view that no laws should pass without strong protections. House Freedom Caucus chair Andy Harris told Politico, people, including the House Freedom Caucus, believe that central bank digital currency,

we have to put a stake in its heart once and for all, and the action under that rule wouldn't have done it. Their concern is that the Genius Act could pass and get signed into law with zero CBDC protection. Now, it is apparently not enough to have a standalone anti-CBDC bill, but the way it's written, that's not enough for the Freedom Caucus. Marjorie Taylor Green said in a Twitter post that she voted against the rule because the Stablecoin legislation, quote, does not reflect the president's executive order on January 23rd that specifically says there should be a ban on central bank digital currency.

She was also protesting that Speaker Mike Johnson had disallowed amendments to be voted on. And while the Freedom Caucus could insert an anti-CbDC amendment into the Genius Act, that would force it back to the Senate and start the whole process over. Punch Bulls Laura Weiss reported that Chip Roy also voted no because the Genius Act lacks a hard ban on CBDCs. He commented, We feel like we need to be dealing with this all at once and make sure that we're pretty clear about the central bank digital currency.

We want to know how you're going to get there once you let this one happen. Weiss added that Anna Paula Luna was a no because the current process would allow a back door to CBDCs which her constituents were against. Warren Davidson, who was booted from the Freedom Caucus last year, joined in voting against the rule despite his support for the broader crypto agenda. Davidson is currently against the Genius Act because it doesn't contain strong protections around self-custody. He told the press that, quote, the House is kind of used to not really being given any deference when we send things to the Senate.

I'm going in here to see what we can do from here. Hopefully we can come up with a play that gets crypto week all about crypto. Summing up in case it's not clear, this is about a concern over the lack of a CBDC ban. The Freedom Caucus feels they have absolutely no guarantees the Senate will approve a ban, so they won't move forward with a piecemeal. crypto agenda. This is their singular moment of leverage and they're using it to the fullest extent. The issue is that there's no easy concession to make. GOP leaders don't want to reset progress on the Genius Act by inserting an anti-CbDC amendment or combine all the bills together. Those choices would put the entire agenda at risk rather than taking the easy win with passing the stablecoin bill.

Exasperated by all the political theater, Cody Carbone, the CEO of the Digital Chamber, reacted to Freedom Caucus complaints about the lack of a CBDC ban tweeting, the Anti-CBDC Surveillance Act, which is also up for a vote, specifically does just this. Come on now. He noted that the Genius Act is actually key to preventing a CBDC, adding, if members are interested in banning a CBDC and competing with state-issued digital currencies around the world, the way to do so is to pass the Genius Act and allow the private stablecoin market to flourish in the U.S.

These bills will pass. Meanwhile, House Democrats reveled in the chaos with the Financial Services Twitter account posting, If you're going to declare a crypto week, maybe make sure your entire caucus is on board first. I don't know, just the thought. Brenda Peterson at Punchbowl News commented, maybe we shouldn't be surprised Crypto Week turned into a shit show in the House, and yet, now, it probably shouldn't be a surprise to see dysfunction in Congress

if you've been paying attention to the last few years of crypto legislation or the last few decades of lawmaking in general. But this was one of the president's signature policies, so a major factional split is not a good look. Trump started the day by cheering on Crypto Week posting, the House will soon vote on a tremendous bill to make America the undisputed number one leader in digital assets. Nobody does it better.

This is our moment. Digital assets, genius, clarity. It's all part of making America great again, bigger and better than ever before. And with that in mind, having Crypto Week upended not by Democrats, but by the loudest Maga Republicans is a huge problem for the president. By the evening, it seems that Trump had given the Freedom Caucus their marching orders. At around 9 p.m., he posted, I'm in the Oval Office with 11 of the 12 congressmen and women necessary to pass the Genius Act, and after a short discussion, they've all agreed to vote tomorrow in favor of the rule. In other words, it seems like it was all a speed bump rather than a roadblock. Justin Slaughter, the Regulatory Affairs VP at Paradigm called it much earlier in the evening.

Drawing on his decades of experience with Washington dysfunction, he tweeted, some of you are really demonstrating you've never followed House process all that closely. Rules get blown up, not infrequently. Jake Trevinsky, the chief legal officer of Varian Fund agreed, but added, got to admit, it would be very crypto and also very Congress if Congress were to pass no crypto legislation during Crypto Week, right? So it seems, fingers crossed that the cats have been hurted and were expecting at least the Genius Act to pass during Crypto Week.

Given that that was supposed to be the easy one, we'll have to see how the rest of the week plays out. Today's episode of The Breakdown is brought to you exclusively by Grayscale. Grayscale is almost certainly a name you know. They've been offering exposure to crypto for over a decade now and offer over 20 different crypto investment products, ranging from single asset to diversify to thematic exposure to crypto and the broader crypto industry. They have long been innovators at the intersection of Tradfai and Crypto, and one of the benefits for a lot of us is that Grayscale products are available right through your existing brokerage or IRA. Now, of course, investing involves risk, including possible loss of principle.

For more information and important disclosures, visitgrayscale.com. Go to Grayscale.com to explore their full suite of crypto investment products and invest in your share of the future. Now, zooming out a little bit, Bitwise CIO Matt Hogan marked the start of Crypto Week with a newsletter unpacking why this is such a major turning point for the industry. He wrote, I'm convinced that passage of pro-crypto legislation in the U.S. will both significantly increase growth and reduce risk for crypto going forward. Crypto will never be the same. The growth side is obvious, writes Hogan, but the risk side is less discussed.

One of the key themes of the crypto industry's history is hubris and catastrophe. The list of blowups is too long to mention, but each Bitcoin bull run has been followed by a major crypto exchange detonating and resetting the entire industry back to square one. Hogan writes that offshore exchanges, quote, would never have thrived if clear regulations had allowed safer versions to exist in onshore markets. Investors wouldn't have avoided crypto because of custody concerns if large banks could have custodied crypto assets. And Ponzi stable coins like Luna would have never existed if we had something like the Genius Act in place. Obviously, clear rules don't thwart every scandal as traditional finance can attest, but they help a lot. Honestly, I understand what Hogan is saying

directionally, but I'm not sure that I agree. FTCS wasn't a shoddy offshore exchange. It had fraudulent practices, as we all learned at the end. And yes, maybe having U.S.-based stable coins would have sort of slowed the momentum of Luna, but it was retail getting excited about number go up. I don't know, not to contravene the narrative, because I think that Hogan's right that it's important. I'm just not sure that regulations make a meaningful dent in human greed. So Hogan is definitely correct when he writes, it's hard for professional investors to buy an asset that might create or 70% because of some unforeseen scandal in an unregulated offshore venue. As D.C. weighs these crypto bills, I'd argue the probability of those scandals happening is about to drop precipitously.

Passage of strong crypto legislation won't eliminate volatility from the market, but if these bills pass, I doubt we'll ever see a 70% plus drawdown in crypto again. Now, one of the big concerns about crypto policy is that all the hard work could be undone by the next administration. You could easily imagine laws being repealed, Gary Gensler being reinstalled as an agency head, and suddenly we're all back to setting up headquarters in the Cayman Islands. Hogan argues, however, that this isn't likely, noting that the Genius Act saw strong bipartisan support, saying, there are multiple reasons for this bipartisan support,

including the widespread popularity of crypto among younger voters. But the most important explanation may be the support of the U.S. financial industry, traditionally a leading funder of the Democratic Party, which is eager to tap into the growth and opportunities that crypto offers. Many have noted that the divide on crypto is actually an age gap. Key anti-crypto Democrats are in their 70s and 80s, while younger lawmakers have no particular animus against crypto. Still, Hogan is largely following the money.

He believes that once BlackRock, J.P. Morgan, and other financial institutions have crypto products available and driving revenue, it's going to be impossible for lawmakers to reverse course. Hogan writes, in other words, you can't put the genie back in the bottle. If these bills pass through Congress during crypto week and eventually get signed into law, we've entered a new era. Crypto is going mainstream, risk is being reduced, and Wall Street is moving into the space in a big way. No wonder we're at all-time highs. Now, lastly today, some macro news.

CPI ticked up in June. apparently validating the Fed's inflation fears. Headline inflation came in at 2.7% up from 2.4% in May. Core inflation, which excludes food and energy, rose from 2.8% to 2.9%. The numbers were in line with consensus forecasts, but that's cold comfort given economists were expecting an increase. Headline inflation is now at its highest rate since February and decidedly heading in the wrong direction. While the annual change in consumer prices isn't out of control, the monthly pace is starting to get concerning. A 0.3% increase in headline CPI means that, inflation is running at a 3.5% annualized rate over the short term. Some analysts thought the

explanation was very clear. Omar Sharif, head of inflation insights, wrote, today's report showed that tariffs are beginning to bite. The peril prices rose, household furnishing prices jumped, and recreation commodities increased. Others weren't so sure, with Dan North, the senior economist at Alian's trading, stating, it's really hard to point to this report or any details in the report and say, aha, see what's happened to prices because of tariffs. You get these pretty massive tariff increases. It's bound to pass through to the consumers, and I still think it will, but it's not in this report so far. Realistically, a rise in inflation due to tariffs would be the good outcome, because it would be, to use an overused term, transitory effect.

More concerning is the idea that tariffs haven't even begun to bite, and that this is another wave of generalized inflation. Either way, the Fed's reaction function remains the same. The Fed is almost certain to hold rate steady at the end of the month, and odds of a rate cut in September have dipped. They're still slightly more likely to cut than not, but the decision is far less certain than it was a few weeks ago. Chris Lowe, chief economist at FHN Financial said, June marks the fifth month since tariffs were imposed on our three biggest trade partners without tariff-related inflation fireworks.

That we need more evidence crowd at the Fed is likely to dig in and carry the day again at the meeting at the end of this month, but at this rate, the result could be pressure for a bigger cut in September just like last year. Dallas Fed President Lori Logan reinforced that stance during public statements yesterday, commenting, rates fairly soon. Essentially, until something breaks, don't expect a consensus around rate cuts. The inflation print is certainly not a disaster, but it does reinforce the wait-and-see stance at the Fed. One interesting note is that housing inflation is basically no longer a problem. The heavily

lagged component of CPI was a major concern for the Fed over the past year, as it makes up around a third of the index. It's now down to a 1.3% annualized pace, dropping from 1.6% in May. However, the drop in housing inflation only serves to reinforce that other components of the index are rising in a concerning manner. Gasoline was also negative 8.3% providing a big offset to other rising components. The rise in inflation drove the 30-year U.S. bond rate to 5% for the third time this year. That level has coincided with drawdowns and risk assets and served as a ceiling for the long bond. Felix Javan, the host of forward guidance, wrote, Core goods are meaningfully accelerated as of today's CPI print. The reason CPI came in within

expectations was lagged core services, namely sheltered, doing some heavy lifting. Markets knew there's little juice left to squeeze from that. That's why the bond market sold off, in my opinion. Ian Shepardson, the editor of Pantheon macroeconomics tweeted, core CPI marginally undershoots consensus, but look under the hood and you'll see tariffs in a big way, and far more to come. Anyways, friends, that is going to do it. We will keep you posted on all the developments around Crypto Week. It's certainly not without its intrigue. Until next time, be safe and take care of each other. Peace.