Senate Crypto Bill: Galaxy Warns of Unprecedented Financial Oversight

TLDR

• Galaxy Digital warns that the Senate’s crypto bill could grant the US Treasury expansive surveillance powers over digital assets.
• The bill introduces a crypto-specific “special measures” provision, allowing the Treasury to restrict crypto fund transfers.
• The proposed legislation includes a “temporary hold” mechanism, enabling authorities to freeze crypto transactions without a court order.
• The bill requires crypto platforms to comply with Anti-Money Laundering controls and screen wallets for sanctioned activity.
• New regulations could impose Bank Secrecy Act obligations on decentralized finance protocols, targeting those with centralized control.

Galaxy Digital has raised concerns over a draft crypto market structure bill introduced by the US Senate Banking Committee. The company believes the bill would grant the US Treasury sweeping new powers to monitor and enforce actions in the digital asset space. The firm described the proposal as the largest expansion of financial surveillance powers since the US Patriot Act.

Treasury’s Power Over Crypto May Increase

The bill gives the US Treasury unprecedented authority over digital assets, according to Galaxy Digital’s analysis. A new crypto-specific “special measures” provision would allow the Treasury to designate foreign jurisdictions and financial institutions as primary money-laundering concerns.

This would enable the Treasury to restrict or condition crypto fund transfers from these designated areas. Galaxy warned that this power resembles tools established under the Patriot Act, which expanded government surveillance after the 9/11 attacks. These measures could be applied broadly, including offshore platforms and transaction networks.

Another concerning element in the draft is a mechanism for “temporary hold” on digital asset transactions. The Treasury or other covered agencies could freeze transactions for up to 30 days without needing a court order.

The freeze could extend if authorities request it. Galaxy argued that this provision would further expand government power over crypto activities without due process.

Increased Compliance and Control for Crypto Services

The bill also targets compliance in the crypto sector, placing more stringent requirements on service providers. It mandates that crypto platforms screen wallets, block sanctioned activity, and apply Anti-Money Laundering (AML) controls. The provision could require digital asset service providers to adhere to the same compliance rules as traditional financial institutions.

This includes responsibilities for front-end platforms, which may be required to filter transactions related to decentralized finance (DeFi) protocols. The bill outlines specific regulations for web-hosted interfaces, increasing the scrutiny of crypto services.

The draft legislation also imposes new obligations on “DeFi in name only” protocols. Under this section, regulators could demand Bank Secrecy Act obligations from individuals or groups controlling DeFi protocols. This would require such entities to adhere to compliance standards typically reserved for traditional financial institutions. The proposal could redefine how decentralized applications are structured, with potential consequences for their operations.

Senate Delays Further Action on Crypto Bill

The Senate Banking Committee’s proposed crypto bill is not the only regulatory effort in the works. The Senate Agriculture Committee has also been reviewing its own version of the crypto market structure bill. However, it delayed its markup until the final week of January. Committee Chairman John Boozman cited the need for additional time to secure broader bipartisan support.

As these legislative efforts progress, the crypto industry continues to express concerns about the expanding scope of government oversight. While Galaxy Digital raised alarms about the potential overreach of the proposed measures, the Crypto Council for Innovation (CCI) emphasized the importance of a balanced regulatory framework.

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