Coinbase vs. Wall Street: Tokenization Battle Threatens Crypto Bill

A deepening dispute over tokenized stocks threatens to derail Washington’s push for comprehensive crypto regulation as industry executives split over language in the Senate Banking Committee’s portion of the landmark digital assets bill.

Coinbase CEO Brian Armstrong called the contested section a “de facto ban” on tokenized equities earlier this month, while traditional finance stalwarts, including Ken Griffin’s Citadel Securities, argue firms should follow identical rules whether dealing in blockchain-based or conventional securities.

The fracture emerged after Senate Banking Chair Tim Scott released bill text containing provisions that affirm the Securities and Exchange Commission’s authority over financial assets resembling stocks and bonds, regardless of whether they exist on blockchain networks.

According to Politico, committee Democrats requested the language’s inclusion, catching many crypto executives by surprise and exposing fundamental disagreements over how quickly markets should transition “on-chain.”

Wall Street Demands Regulatory Parity as Coinbase Seeks Carveouts

Traditional finance firms and their lobbying arms have drawn a firm line against preferential treatment for tokenized securities.

“If you are engaged in securities brokerage activities, you should be regulated as such,” Securities Industry and Financial Markets Association CEO Ken Bentsen stated, reflecting Wall Street’s insistence that blockchain technology shouldn’t exempt companies from existing market structure rules.

Coinbase Chief Policy Officer Faryar Shirzad countered that the disputed language would force lengthy rulemaking processes instead of allowing SEC Chair Paul Atkins to offer simpler carveouts from existing regulations.

“This seems designed to undercut Chairman Atkins’ work at the SEC to implement the president’s crypto agenda, so we’re definitely concerned about it,” Shirzad told Politico, emphasizing the provision’s potential to slow tokenization efforts that many executives consider inevitable for U.S. financial markets.

Former SEC official Marlon Paz defended the section, arguing that it clarifies rather than restricts the agency’s authority.

“Tokenization itself doesn’t change the character of the thing,” said Paz, who teaches at the University of Pennsylvania’s law school, adding, “I see this as a net positive advancing the ball, providing quite a lot of clarity and not at all a de facto ban.“

Securitize CEO Carlos Domingo and Andreessen Horowitz policy head Miles Jennings have similarly argued that the language merely restates existing securities law without creating new barriers.

The SEC reinforced this interpretation on Wednesday, when its staff released a detailed statement clarifying that tokenized versions of traditional financial instruments remain subject to federal securities laws regardless of the underlying technology.

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

White House Convenes Crisis Talks

Beyond the tokenization dispute, the stalled legislation faces mounting procedural and political obstacles that prompted White House intervention.

The administration scheduled a February 2 meeting bringing together Coinbase representatives, banking executives, and crypto lobbying groups to resolve disagreements over stablecoin reward provisions that have paralyzed Banking Committee progress, according to Bloomberg and Reuters.

Senator Roger Marshall removed another obstacle by agreeing not to offer his controversial credit card swipe fee amendment during the markup.

The Kansas Republican’s provision, which would have forced payment networks to compete on transaction fees, threatened to sink Republican support for the underlying crypto legislation before White House officials intervened directly to prevent its consideration, sources confirmed to Politico.

Budget Crisis and Ethics Disputes Narrow Legislative Window

Washington’s approaching government shutdown deadline compounds the bill’s challenges as Senate Democrats block a $1.3 trillion appropriations package following a deadly Minneapolis Border Patrol shooting.

Former Utah Governor Gary Herbert called the standoff evidence of “a lack of leadership, a lack of ability to work together,” while congressional sources warned that hundreds of thousands of federal workers could face furloughs if negotiations fail before Saturday’s deadline.

White House crypto council director Patrick Witt urged immediate passage despite imperfections, warning delays risk “punitive legislation in the wake of a crisis, à la Dodd-Frank” if Democrats regain control.

“You might not love every part of the CLARITY Act, but I can guarantee you’ll hate a future Dem version even more,” Witt wrote, referencing investment bank TD Cowen’s warning that midterm election positioning could push passage into 2027 with implementation delayed until 2029.

One anonymous crypto lobbyist summarized industry anxiety over the disputed tokenization language: “I don’t think Congress just spills ink for fun.“

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