Coinbase and Wall Street: Tokenization Conflict Poses Risk to Crypto Legislation

An escalating conflict regarding tokenized stocks poses a risk to Washington’s initiative for comprehensive cryptocurrency regulation, as industry leaders differ on the wording within the Senate Banking Committee’s section of the significant digital assets legislation.

Earlier this month, Coinbase CEO Brian Armstrong described the controversial portion as a “de facto ban” on tokenized equities, while established finance entities, such as Ken Griffin’s Citadel Securities, contend that companies should adhere to the same regulations whether they are dealing with blockchain-based or traditional securities.

The division arose after Senate Banking Chair Tim Scott presented bill text that includes provisions affirming the Securities and Exchange Commission’s authority over financial assets akin to stocks and bonds, regardless of their existence on blockchain platforms.

As reported by Politico, committee Democrats sought the inclusion of this language, surprising many crypto executives and revealing significant disagreements about the pace at which markets should shift to “on-chain.”

Coinbase CEO @brian_armstrong stated that the exchange cannot endorse the Senate’s crypto bill as it stands, cautioning that it would negatively impact tokenized equities, DeFi, and privacy while diminishing the CFTC’s role. #Coinbase #CryptoPolicy https://t.co/kMbxepaWYk

— Cryptonews.com (@cryptonews) January 15, 2026

Wall Street Calls for Regulatory Equality as Coinbase Seeks Exceptions

Traditional finance companies and their lobbying factions have firmly opposed any preferential treatment for tokenized securities.

“If you are involved in securities brokerage activities, you should be regulated accordingly,” asserted Securities Industry and Financial Markets Association CEO Ken Bentsen, reflecting Wall Street’s demand that blockchain technology should not exempt firms from existing market structure regulations.

In response, Coinbase Chief Policy Officer Faryar Shirzad argued that the disputed language would necessitate prolonged rulemaking processes instead of permitting SEC Chair Paul Atkins to provide straightforward exceptions from current regulations.

“This appears to be aimed at undermining Chairman Atkins’ efforts at the SEC to advance the president’s crypto agenda, so we are certainly concerned about it,” Shirzad told Politico, highlighting the provision’s potential to hinder tokenization initiatives that many executives believe are inevitable for U.S. financial markets.

Former SEC official Marlon Paz defended the provision, asserting that it clarifies rather than constrains the agency’s authority.

“Tokenization itself doesn’t alter the nature of the asset,” remarked Paz, who teaches at the University of Pennsylvania’s law school, adding, “I view this as a net positive, advancing clarity without being a de facto ban.”

Securitize CEO Carlos Domingo and Andreessen Horowitz policy director Miles Jennings have similarly contended that the language simply reaffirms existing securities law without imposing new hurdles.

The SEC reinforced this interpretation on Wednesday when its staff issued a comprehensive statement clarifying that tokenized versions of traditional financial instruments are still governed by federal securities regulations, irrespective of the underlying technology.

The SEC established a clear stance on tokenization, asserting that placing stocks or bonds on blockchain does not alter their legal standing or exempt them from U.S. securities laws. #SEC #Tokenization https://t.co/bl7qxOTxa4

— Cryptonews.com (@cryptonews) January 29, 2026

According to the statement from the agency’s Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets, tokenization alters the format but not the legal identity of stocks or bonds, with ownership recorded on crypto networks still incurring the same legal obligations related to offering, selling, and reporting that apply to traditional securities.

White House Holds Crisis Discussions

In addition to the tokenization debate, the stalled legislation faces increasing procedural and political hurdles that have led to White House involvement.

The administration has organized a meeting for February 2, bringing together Coinbase representatives, banking executives, and crypto lobbying groups to resolve disputes over stablecoin reward provisions that have impeded progress in the Banking Committee, according to Bloomberg and Reuters.

Senator Roger Marshall alleviated another issue by agreeing not to propose his contentious credit card swipe fee amendment during the markup.

The Kansas Republican’s amendment, which would have compelled payment networks to compete on transaction fees, risked undermining Republican support for the fundamental crypto legislation before White House officials intervened directly to prevent its consideration, sources confirmed to Politico.

Budget Crisis and Ethical Disputes Constrict Legislative Opportunities

Washington’s impending government shutdown deadline exacerbates the bill’s difficulties as Senate Democrats block a $1.3 trillion appropriations package following a tragic Minneapolis Border Patrol shooting.

Former Utah Governor Gary Herbert characterized the stalemate as indicative of “a lack of leadership and an inability to collaborate,” while congressional sources cautioned that hundreds of thousands of federal workers could face furloughs if negotiations do not conclude before Saturday’s deadline.

White House crypto council director Patrick Witt called for the swift passage of the bill despite its flaws, warning that delays could result in “punitive legislation in the aftermath of a crisis, akin to Dodd-Frank,” should Democrats regain control.

₿ Patrick Witt maintains that “no bill is preferable to a bad bill,” a “privilege” to state due to Trump’s pro-crypto administration. #PatrickWitt #CryptoMarketStructureBill #CryptoLegislation https://t.co/KmaS7NL4cE

— Cryptonews.com (@cryptonews) January 21, 2026

“You may not appreciate every aspect of the CLARITY Act, but I can assure you’ll dislike a future Democratic version even more,” Witt wrote, referencing investment bank TD Cowen’s caution that midterm election positioning could delay passage until 2027 with implementation postponed until 2029.

One anonymous crypto lobbyist encapsulated industry concerns regarding the disputed tokenization language: “I don’t think Congress just writes legislation for fun.”

The post Coinbase vs. Wall Street: Tokenization Battle Threatens Crypto Bill appeared first on Cryptonews.