Coinbase Warns of Withdrawing Support for Senate Cryptocurrency Legislation: Report

Coinbase has issued a warning that it may retract its support for significant cryptocurrency legislation if Senate negotiators add limitations on stablecoin rewards beyond the improved disclosure requirements, heightening tensions prior to a crucial markup set for January 15.

The leading US cryptocurrency exchange might rethink its endorsement of the digital asset market structure bill if the final wording includes provisions that prevent platforms from providing incentives to customers who hold stablecoins, as reported by Bloomberg.

A representative from Coinbase referred Bloomberg to remarks made by Brian Armstrong in December, where the CEO anticipated that banks “would in a few years start lobbying for” stablecoin yield, despite their current resistance.

This warning arises as lawmakers hurriedly work to complete legislation that has already missed several deadlines throughout 2025, with Senate Banking Committee Chair Tim Scott establishing this week’s markup as a strict deadline following months of stalled discussions.

Crypto firms increase lobbying efforts in Washington as a pivotal Senate vote on the U.S. market structure bill approaches. #USSenate #CryptoBill https://t.co/bbNSAzfE4r

— Cryptonews.com (@cryptonews) January 8, 2026

Banking Sector Advocates for Wider Yield Limitations

Traditional banking organizations are advocating for broader restrictions beyond what Congress set forth in the GENIUS Act, which prohibits stablecoin issuers from providing direct interest but permits third-party platforms to offer rewards.

One proposal being considered would restrict rewards to regulated financial institutions, a strategy supported by banking advocates who contend that yield-bearing stablecoin accounts could siphon deposits from community banks.

The American Bankers Association stated in a recent letter that “if billions are displaced from community bank lending, small businesses, farmers, students, and home buyers in communities like ours will suffer.”

The organization cautioned that cryptocurrency exchanges cannot replicate FDIC-insured products or bridge the lending gap caused by deposit outflows.

Coinbase has sought a national trust charter that might eventually enable it to provide rewards under such regulations.

Nevertheless, crypto-native companies are fighting to maintain platform-based incentives as a viable option even without banking licenses, warning that broader limitations could stifle competition within the industry.

Stablecoin Rewards Constitute Essential Revenue for Coinbase

For Coinbase, the rewards signify a vital revenue source that is worth safeguarding.

The exchange and Circle Internet Group share interest income derived from reserves backing Circle’s USDC stablecoin, with USDC held at Coinbase generating consistent revenue that becomes particularly crucial during bear markets.

Coinbase also holds a minor stake in Circle, currently the largest stablecoin issuer compliant with U.S. law.

The platform incentivizes users to retain USDC by offering a 3.5% reward on Coinbase One balances.

If the market structure bill prohibits such incentives, fewer customers may choose to hold stablecoins on the exchange, potentially diminishing Coinbase’s overall stablecoin revenue, which Bloomberg data estimates reached $1.3 billion in 2025.

Faryar Shirzad, Coinbase’s chief policy officer, argued in a recent post that maintaining reward programs is crucial for upholding dollar dominance, pointing out that China has announced plans to begin paying interest on its digital yuan starting January 1, 2026.

“Undermining the supremacy of the USD has been a longstanding objective of the PRC—the Senate banning rewards would significantly aid China’s endeavors,” he stated.

The Senate Banking Committee will mark up the Market Structure bill next week, and stablecoin rewards are still under discussion. Congress already resolved this in GENIUS—reopening it now only generates uncertainty and jeopardizes the future of the US Dollar as commerce shifts on-chain. Here’s why…

— Faryar Shirzad (@faryarshirzad) January 7, 2026

Bipartisan Support Weakens as Midterms Draw Near

While the Trump administration advocates for prompt legislative action, the disagreement over stablecoin rewards has divided bipartisan support for the market structure bill.

Senate Agriculture Committee Chair John Boozman is contemplating postponing his committee’s January 15 vote to allow additional time for negotiations with Democratic lead negotiator Cory Booker.

Boozman indicated earlier this week that he intended to proceed with the vote next week irrespective of bipartisan backing. Booker expressed optimism on Thursday that the two parties could arrive at a consensus.

Compounding the delay, TD Cowen cautioned earlier this month that the 2026 midterm elections could push the passage until 2027, with Senate Democrats possibly withholding support as lawmakers prepare for the upcoming cycle.

Bloomberg Intelligence analyst Nathan Dean suggested that the lack of bipartisan support for the markup may reduce the likelihood of passage in the first half of the year to below 70%.

The U.S. Senate is set to vote on the crypto market structure bill on January 15 despite significant divisions over key issues. #CryptoRegulation #USSenate https://t.co/kUWyH1mRCl

— Cryptonews.com (@cryptonews) January 7, 2026

The legislative effort unfolds as several Senate committees prepare for simultaneous markups, with White House crypto czar David Sacks urging lawmakers to act this month amid a push to establish clearer regulatory frameworks for digital assets.

Industry insiders believe that even if the restrictions are enacted, crypto companies will discover new methods to reward users, resulting in a regulatory game of whack-a-mole as firms seek alternative incentive models.

The post Coinbase Threatens to Pull Backing for Senate Crypto Bill: Report appeared first on Cryptonews.