Senate Crypto Bill Hands Treasury “Patriot Act–Style” Surveillance Powers — Galaxy Sounds Alarm

Washington just dropped a bombshell on crypto—and it's wrapped in red tape. The Senate's latest digital asset legislation grants the Treasury Department sweeping new authority to monitor transactions, drawing immediate comparisons to post-9/11 financial surveillance.

The Galaxy Alarm

Galaxy Digital, the crypto investment firm founded by Mike Novogratz, fired off a stark warning. Their analysis suggests the bill's provisions could force decentralized protocols and wallet providers to collect and report user data at a scale never before seen in the sector. It's not just about exchanges anymore; the net widens.

Patriot Act Parallels

The core concern? Language that mimics the Bank Secrecy Act framework, supercharged for the digital age. Think mandatory reporting for transactions over certain thresholds, identity verification demands that clash with pseudonymous wallets, and potential backdoor access to blockchain analytics tools. The industry's biggest fear—being regulated like a traditional bank, but without any of the established guardrails or clarity.

A Chilling Effect on Innovation

Developers might think twice before launching the next DeFi protocol if it means becoming a de facto surveillance arm for the government. The bill could effectively force U.S. crypto activity into a fully identified, monitored corridor—cutting against the very grain of permissionless innovation that built the space. Some whisper about a potential exodus of talent and capital, a classic case of regulatory overreach solving a problem that doesn't exist with a sledgehammer.

Finance's Old Guard Gets a New Toy

And here's the cynical finance jab: nothing makes a legacy regulator happier than applying a 20th-century rulebook to 21st-century technology. It's the ultimate comfort zone—treating bits like dollars and code like a vault. Meanwhile, the actual bad actors will just hop to another chain, leaving compliant builders holding the bag.

The battle lines are drawn. This isn't just another compliance update; it's a fundamental clash over the soul of the financial internet. Will privacy and innovation survive the embrace of the surveillance state? The Senate is about to decide.

Senate Crypto Bill Gives Treasury Broad New Powers, Galaxy Says

In a research note published Tuesday, Galaxy said the Senate Banking Committee’s draft goes well beyond the House-passed Digital Asset Market Clarity Act, particularly in its treatment of illicit finance.

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At the center of the firm’s concern is a new crypto-specific “special measures” authority that WOULD allow Treasury to label foreign jurisdictions, financial institutions, or even entire categories of digital asset transactions as primary money-laundering concerns.

Once designated, Treasury could restrict or condition crypto fund transfers connected to those entities, a power Galaxy compared directly to authorities created under the Patriot Act after the September 11 attacks.

Galaxy argued that, while framed as a national security tool, the authority could be applied broadly across offshore trading venues and transaction rails, materially expanding the government’s reach into crypto markets.

It said that, taken together, the bill’s provisions would amount to the largest expansion of financial surveillance powers since the early 2000s, a period that remains controversial for its impact on civil liberties.

The draft legislation also introduces a formal framework for temporary transaction holds.

Under this mechanism, Treasury or other covered agencies could request that stablecoin issuers and digital asset service providers freeze transactions for up to 30 days, with the option to extend, without first obtaining a court order.

Galaxy flagged this as a significant departure from existing processes, noting the absence of immediate judicial oversight.

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

The text defines “distributed ledger application layers,” including web-hosted interfaces used to access blockchains and decentralized finance protocols.

It also directs Treasury to issue guidance requiring these tools to screen wallets, block sanctioned activity, and apply risk-based AML controls.

Stablecoin Rewards Face New Limits as Senate Crypto Debate Intensifies

Galaxy also pointed to language targeting so-called “DeFi in name only” protocols, which would allow regulators to impose Bank Secrecy Act obligations on teams or individuals who retain meaningful control over protocol functionality or user access.

The Senate proposal is moving forward alongside intense debate over stablecoin rewards.

A revised draft released ahead of the markup would prohibit digital asset service providers from paying yield simply for holding payment stablecoin balances.

Banking groups have backed the restriction, arguing that yield-bearing stablecoins resemble deposits without equivalent safeguards, while crypto firms say the issue was already settled under the GENIUS Act passed last year.

Industry responses have been mixed, with the Crypto Council for Innovation saying it views the Senate text as evidence of continued engagement on a critical policy priority but stressing that any final framework must preserve consumer choice and support competition.

Coinbase has warned it could withdraw support if reward programs are curtailed too aggressively, even as some executives signal a willingness to accept the current compromise.

The legislative path remains uncertain as the Senate Banking Committee is preparing for markup this week, while the Senate Agriculture Committee plans to release its own text by January 21, with a markup scheduled for January 27.

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Both versions would need to be reconciled before a full Senate vote, followed by negotiations with the House.