Crypto Regulations Hang in the Balance as Congress Weighs Durable Rules

Congress is weighing in on the regulation of cryptocurrencies and digital assets as the current regulatory landscape remains uncertain. According to a recent report by the Congressional Research Service, federal banking regulators have flip-flopped on permitting crypto activities since 2017, with each change in administration leading to new rules. This has created a volatile environment for banks and investors.

The report highlights three potential paths forward: continuing to defer to regulators, legislating specific permissions or prohibitions, or combining both approaches. Currently, there is no comprehensive definition of 'the business of banking,' leaving regulators to decide which activities qualify. The report notes that crypto-specific concerns include pseudonymity and volatile markets.

The GENIUS Act has already made stablecoin issuance permissible for bank subsidiaries, while the CLARITY Act takes a more permissive stance, allowing banks to use digital assets or blockchain for various activities. However, the Senate-reported version of the bill would add 11 categories of crypto activities permissible for all banking organizations and credit unions.

The report suggests that unless Congress acts, the regulatory baseline remains vulnerable to reversal. It also raises a longer-term structural question: whether the legal distinction between banks and nonbanks remains relevant as more activities are permitted.