The GENIUS Act has finally passed the U.S. Senate with strong bipartisan support (68 Y/30 N). The legislation, which we have written about at length in this newsletter, represents a watershed moment in the regulation of stablecoins.
The Act creates a clear legal framework for both banks and non-banks to issue fully backed, dollar-denominated digital assets. Once signed into law, it will lay the foundation for a globalized, regulated stablecoin market, rooted in the U.S. Crypto industry participants and lawmakers alike welcomed the law, heralding it as a major step forward for the industry.
Senator Kirsten Gillibrand (D-NY) and Senator Cynthia Lummis (R-WY) called it, without hyperbole, "the most significant digital assets legislation ever to pass the U.S. Senate."
We have long maintained that the passing of the Genius Act would be a big catalyst for stocks with exposure to crypto and broader blockchain adoption. But even we did not anticipate the euphoric reaction from some of the industry leaders. Shares of Circle (CRCL), the issuer of the largest U.S.-based stablecoin USDC, surged a staggering 33% on Wednesday, while , Circle's partner in USDC and the largest U.S.-based exchange, soared by 17%.
Interestingly, this is the first cycle where some of the biggest capital formation events and some of the most spectacular gains are happening in the stock market, rather than the crypto market, which is surely a sign of the industry's maturity and greater integration into the economy.
At the same time, shares of Mastercard and Visa closed down 5.4% and 4.9%. We think that's probably an overreaction. Those businesses have been ahead of the curve in embracing blockchain and planning for the stablecoin era and may even benefit from the ubiquity of digital payments on-chain and off-chain.
So, the GENIUS Act is a big deal, but, as The Defiant points out it has a few flaws and quirks: The legislation bars members of Congress and their families from profiting off stablecoins, which feels like a sensible guardrail, yet it surprisingly (or not-so-surprisingly) omits the President and First Family. Hmmm . . . As we've written before, Trump's personal profiteering from crypto undermines his whole agenda and, arguably, shakes trust in the technology itself. The Act also prohibits yield-bearing stablecoins on the grounds that they resemble investment products. With that exemption, banks dodged a bullet.
After all, for many people, a yield-bearing stablecoin in a digital wallet does most of what a bank does without overdraft fees, business hours, and glitchy bank websites. Finally, as with all financial regulation, the bill's compliance and KYC requirements create an added burden that might benefit big and well-capitalized companies at the expense of startups.
So it isn't perfect. But politics is the art of the possible. Never let perfect be the enemy of the good, and all that. For now, let's celebrate the win and plan for the future.
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