Senate Crypto Legislation Grants Treasury “Patriot Act–Style” Monitoring Authority — Galaxy Raises Concerns

A proposed cryptocurrency market structure bill in the U.S. Senate is raising fresh alarms within the digital asset sector, with Galaxy Digital cautioning that it could grant the Treasury Department extensive surveillance and enforcement powers reminiscent of the USA Patriot Act.

This alert arises as legislators seek to reconcile regulatory proposals from the House and Senate amid ongoing market instability and ambiguity in policy.

Senate Crypto Bill Provides Treasury Extensive New Authorities, According to Galaxy

In a research note issued on Tuesday, Galaxy stated that the draft from the Senate Banking Committee significantly surpasses the House-approved Digital Asset Market Clarity Act, especially regarding its approach to illicit finance.

This week on Galaxy Grid — a weekly video series from @glxyresearch. @intangiblecoins, @TheThadP, @Uptodatenow, and @ZackPokorny_ analyze the narratives influencing crypto — detailing what transpired, why it is significant, and what lies ahead.
Episode 13 is now available pic.twitter.com/s7pgSvYUNI

— Galaxy Research (@glxyresearch) January 13, 2026

Central to the firm’s apprehension is a newly introduced crypto-specific “special measures” authority, which would enable the Treasury to designate foreign jurisdictions, financial institutions, or even entire classes of digital asset transactions as significant money-laundering risks.

Once identified, the Treasury could impose restrictions or conditions on crypto fund transfers associated with those entities, a power that Galaxy likened directly to the authorities established under the Patriot Act in the wake of the September 11 attacks.

Galaxy contended that, although presented as a tool for national security, the authority could be broadly applied across offshore trading platforms and transaction systems, significantly extending the government’s influence over crypto markets.

It asserted that, collectively, the provisions of the bill would represent the most substantial enlargement of financial surveillance powers since the early 2000s, a time still debated for its effects on civil liberties.

The draft legislation also establishes an official framework for temporary transaction holds.

Through this mechanism, the Treasury or other relevant agencies could request that stablecoin issuers and digital asset service providers suspend transactions for up to 30 days, with the possibility of extension, without needing to first secure a court order.

Galaxy highlighted this as a notable shift from current procedures, pointing out the lack of immediate judicial oversight.

Another segment of the bill explicitly incorporates crypto front ends into sanctions and Anti-Money Laundering compliance.

The language defines “distributed ledger application layers,” which includes web-hosted interfaces utilized to access blockchains and decentralized finance protocols.

It also instructs the Treasury to provide guidance mandating these tools to screen wallets, block sanctioned activities, and implement risk-based AML controls.

Stablecoin Rewards Encounter New Restrictions as Senate Crypto Discussions Heat Up

Galaxy also noted provisions aimed at so-called “DeFi in name only” protocols, which would enable regulators to impose Bank Secrecy Act obligations on teams or individuals who maintain significant control over protocol functionality or user access.

The Senate proposal is advancing amidst vigorous discussions regarding stablecoin rewards.

A revised draft released prior to the markup would bar digital asset service providers from offering yield simply for maintaining balances in payment stablecoins.

Banking associations have supported this limitation, arguing that yield-bearing stablecoins resemble deposits without adequate protections, while crypto companies assert that the matter was already resolved under the GENIUS Act passed last year.

Responses from the industry have varied, with the Crypto Council for Innovation expressing that it views the Senate text as indicative of ongoing engagement on a crucial policy issue, but emphasizing that any final framework must uphold consumer choice and foster competition.

Coinbase has cautioned that it might withdraw support if reward initiatives are restricted too severely, even as some executives indicate a readiness to accept the current compromise.

The legislative route remains unpredictable as the Senate Banking Committee prepares for markup this week, while the Senate Agriculture Committee intends to release its own text by January 21, with a markup planned for January 27.

Senate sets January 27 crypto bill markup as banking lobby secures stablecoin yield limits and Democrats demand White House ethics guardrails.#Senate #Banking #CryptoBillhttps://t.co/iK8utlKRhr

— Cryptonews.com (@cryptonews) January 14, 2026

Both drafts will need to be reconciled prior to a full Senate vote, followed by discussions with the House.

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