The Breakdown - Crypto Clash: Waters’ Walkout vs. Market-Structure Bill

Episode Date: May 7, 2025

House Democrats, led by Rep. Maxine Waters, plan a walkout to derail a joint hearing on the 212-page crypto market-structure bill, framing it as a protest against Trump-linked stablecoin dealings. NLW dissects the politics, bill revisions, and industry reactions. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

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 Tuesday, May 6th, and today we are talking about a Democrat walkout. 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 are going to bit.ly slash breakdown pod. Well, friends, the acrimony grows and rancor over crypto in Washington continues as Dems plan a walkout. Following reports of discontent in the Senate over stable coin legislation, it appears that House Democrats are planning to disrupt the market structure bill.

Politico and Punch Bowl News report that ranking member Maxine Waters is planning to lead a walkout of a hearing scheduled to be held today. Titled American Innovation in the future of digital assets, the hearing was set to be held in conjunction with the House Ag Committee. Several crypto-legal expert witnesses were scheduled to give testimony on the new draft of the market structure bill. Now, joint hearings require unanimous consent, so Waters leading a Democrat walkout could prevent the hearing from taking place. Politico writes that Waters plans to, quote, host a shadow hearing focused on the Trump family's entanglements in the crypto industry.

Punchbowl added that Democrats believe that under House rules, this move will allow them to halt proceedings by denying unanimous consent. This type of hearing with the input of subject matter experts is the usual first step for major legislation before holding a markup hearing to agree on a final amendment in the committee stage. In summary, it looks like a well-planned attempt to halt crypto legislation, which has been widely publicized through the press, in other words, a big publicity stunt aimed at putting Trump's involvement with crypto companies front and center. House Financial Services Committee Chairman French Hill made a public plea for waters to come back to the table and work productively

on this bipartisan legislation. Through a spokesperson, he said, since the last Congress we've had productive bipartisan bicameral discussions on market structure legislation. We encourage the ranking member to attend tomorrow's hearing to express her views and reconsider her decision to object. We have seen disruptive protests from Waters before, but never at this scale. During prior markup hearings, the ranking member used strict process to delay the hearings, forcing them to painfully drag out until late in the evening. However, Waters never crossed the line by using House rules to actively prevent the lawmaking process from moving forward. Part of the reason for the escalation is that it,

in Democrat minds, at least Trump's crypto interests have grown in stature. The president's term started with moderate outrage around political donations from the crypto lobby and the meme coin launch, but the tenor of the outrage was more about garden variety corruption and self-enrichment rather than stoking a massive scandal. Waters has ramped up her rhetoric since World Liberty Financial announced that they would issue a stable coin and benefit directly from a change in regulation. Last month, the ranking member said, this committee voted to make Trump the king of crypto by passing legislation that lets him corner the market on stable coins, kicked George Washington off.

the dollar and make his own stable coin U.S. legal tender. Instead of stopping this grift, you are enabling it. Mr. Chairman, we need to stop Trump before we take any further steps on crypto legislation. Since then, reports have claimed the stable coin was used to fund the $2 billion deal between Abu Dhabi's MGX fund and Binance. We also have recent questions around how much Trump himself is profiting from his meme coin. In his Sunday night interview with NBC's Meet the Press, Trump responded to questions about the meme coin by claiming that he's, quote, not profiting from anything. However, in a follow-up question, he responded, I haven't even looked, but I'll tell you what, if I own stock in something and I do a good job and the stock market goes up, I guess I'm profiting. Trump is hosting a gala dinner

for top meme coin holders towards the end of the month, a group of people that seem to include Justin's son. In short, this has become a political liability and is one of the few points of leverage the Democrats have is standing in the way of crypto legislation. Part of the issue is that it's not clear cut that any of the president's conduct is illegal. Warmhold General Counsel Kathy Hewn said, I don't think generally promoting the meme coin is inherently illegal, but I say it does raise issues of integrity and a ton of ethical questions. I guess the one good thing about a blockchain-based token is that if wallets are associated with foreign states, there would presumably be a way to track that. So like Democrats have been calling for impeachment over Trump's crypto activities for months,

but even pro-crypto Republicans are starting to feel discomfort around the issue. Earlier this month, Cynthia Lama said that the idea of Trump offering access to top meme coin holders, quote, gives me pause. Republican Senator Lisa Murakowski commented, I don't think it would be appropriate for me to charge people to come into the capital and take a tour. new reports of crypto-related corruption are being added every day. Yesterday, the Huffington Post reported that a logistics company called Freight Technologies had purchased $20 million worth of Trump's meme coin. Their CEO stated in a press release that buying the token would be, quote,

an effective way to advocate for fair, balance, and free trade between Mexico and the U.S. And while this company is tiny and trades as a penny stock, making this more of a publicity stunt than functional corruption, Amanda Fisher of Better Markets tweeted, Democrats can't further integrate crypto into American wallets when this is the backdrop. Now, let me take a pause here. Do I think Democrats are seizing upon a comparatively unimportant issue to stand on principle around because it gives them a way to be loudly against Trump, while also not having to really compromise on issues that really matter to their base,

or at least their perception of their base? Yes. Do I think that the choice to not govern and just halt the political process is a healthier, mature one? In most circumstances, not really. Do I think that Trump completely opened himself up to this? Absolutely. Everyone, from the moment he announced the meme coin, everyone knew and saw with basically 100% clarity that this is of course exactly the way that it was going to go. Do I think that there are parts of the Trump wing of the Republican Party that actively want crypto to be a more partisan issue rather than a bipartisan issue? Once again, yes. I think it's useful political fodder for Republicans to have more talking points of look, their anti-innovation. I also think Republicans get better than Democrats that crypto ownership is functionally bipartisan, and so there's political value in making what could be a bipartisan issue partisan by virtue of having only one party seem in favor of the thing. Lastly, do I think that Democrats are emboldened by how much acrimony there is economically towards Trump right now because of tariffs?

Again, yes. I think we have a very caustic mixture where crypto has become a thing to hang around the head of Donald Trump, aided and abetted, of course, by. Trump and the Trump family, and that makes bipartisanship on these issues nearly impossible in the current political climate. Now, do I wish Democrats would get over it and choose other more substantive issues to throw the gauntlet down around? Yes, but here we are. Of course, one of the big problems with centering the crypto debate around Trump is that it creates basically no space to debate the actual contents of the crypto bills. On Monday, House Financial Services and Agriculture

released their updated draft to allow informed discussion at the hearing scheduled for today. House SAG Chairman Glenn G.T. Thompson said, today marks the first step in advancing a comprehensive framework that protects consumers, fosters innovation, and closes regulatory gaps in oversight. It will give digital asset developers and users the certainty they need and have asked for. This is the bill that would determine how the SEC and CFTC divide up jurisdiction over the various parts of the crypto industry and how assets are defined as securities or commodities. It also lays out the ground rules and purpose of more detailed regulation to be written by the agencies. The previous iteration of this bill, known as Fit 21, was controversial in crypto circles as it moved through Congress last year.

We got to the stage where the industry vocally supported the bill as it went to a House vote last June. However, that support was on the understanding that the text of Fit 21 would never become law, and the vote was largely being used to signal bipartisan support for the concept of passing crypto legislation. The new version of the market structure bill actually has a chance of becoming the law so the drafting really matters. Justin Slaughter, the VP of Regulatory Affairs at Paradigm, prepared a detailed summary of the differences, to get deep in the weeds. For the purposes of this show, though, there are a few major changes worth highlighting. For the securities definition, the bill takes a few steps away from the

Howey test and seems to try to codify the state of the law from the Ripple case. Generally, crypto tokens are not securities, but the circumstances surrounding their sale might implicate securities law. Slaughter highlighted that this section is very vague in its wording and needs, quote, rigorous interrogation by everyone. Secondary sales are carved out where they don't transfer ownership rights or a share of profits. However, primary sales to investors or from token issuers directly to the public are specifically covered by securities law. Decentralization hurdles have been raised for tokens that want to be considered commodities. Firms holding 1% or more of a token are seen as having a level of control over the asset, down from 5% in Fit 21. The process of decentralization

is now referred to as becoming a mature blockchain system. Consensus lawyer Bill Hughes summarized the test for a mature blockchain as being if the protocol has, quote, fundamental value and is substantially developed, functional, open, impartial, rules-based, and is not centrally controlled or owned with insiders holding more than 20% in aggregate. Disclosure requirements remain with token issuers required to report on fundraising, spending, and a roadmap to becoming mature. Issuers have four years to reach maturity and have their tokens recognized as commodities rather than securities. The SEC is the final gatekeeper on protocol maturity, but has firm limits on discretion. As Slaughter commented,

the days of the Bukk-Roo, SEC chair are passed. Existing tokens can be great, grandfathered in at the discretion of the SEC, so even if they don't meet the new requirements, they can still be considered a commodity. There are restrictions on how much and how fast large holders of a token can sell, which endure after a protocol becomes mature, which is, of course, meant to safeguard against the problem of VC firms dumping on retail. The bill also contains a new section governing the regulation of defy. Defy protocols that don't take custody of customer assets and require users to operate them directly are carved out. However, defy front ends are regulated by the SEC. Slips into the bill, we also have a section that prevents the Treasury

department from banning self-custody. Ultimately, the thing is 212 pages long, and so there's going to be a lot of detail and nuance that goes beyond the scope of this show. But summing up, Slaughter wrote, I think the main takeaway is that this bill is more different from Fit 21 than we all expected. Overall, the bill is friendly to customers accessing crypto. Secondary transactions are always commodity transactions, and there is minimal driving of liquidity. The main restrictions are on issuers and related or associated persons who are constrained from selling their assets quickly or on mass, aka a dumping. Rules on custody and segregation of assets are good. The decision to exclude many functions of DEPI is smart, as is the idea of focusing on custody. We should treat assets that

are in the custody of someone else differently than when they remain in self-custody. He called this a good effort by the committee's adding, I think there are slight improvements to be made, but most things are minor. I'm looking forward to the dueling roundtables tomorrow. I think my final thought is that it would be good if the Democrat committee staff put down their swords and actually engaged with this bill. We truly need actual solutions in this space. The situation of the last four years hasn't worked as policy, politics, or even as law. It's, in fact, been a disaster that suggests some Dems and Finreg care more about being seen as having their hands clean than making things better.

The best day to regulate crypto continues to be yesterday, or at this point even four years ago, the second best day is today. Now, for our purposes, we are a little early in the process for rival hot takes on crypto Twitter. Slaughter pulled an all-nighter to digest the bill and provide us with this summary. An effort that I am extremely grateful for. As far as other opinions go, Matthew Sigil of Vanac pointed out what's been removed from the bill, highlighting no income or wealth limits for retail buyers and no additional accredited investor checks.

He also called attention to a clear decentralization test and joint responsibility for rulemaking between the SEC and CFTC. Ultimately, he called it a major upgrade from Fit 21 and a solid start. Crypto lawyer Gabriel Shapiro is still working on his full write-up, but noted that there's a ton of additional compliance commenting. One thing that's for sure, crypto lawyers will remain very gainfully employed throughout the rest of our life. So ultimately where we are is that we've got what seems at first glance a pretty good bill, something that we could be working on and working with, and yet the nature of politics today means it's fairly likely that we won't even really get to dig into it. I will give an update tomorrow on where this all stands, but alas, I am not optimistic. For now though, that is going

to do it for today's breakdown. Appreciate you listening as always, and until next time, peace.