Political pressure and market structure delays
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Tanzil Akhtar
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The past week in crypto regulation has exposed a deeper truth about the current policy environment: digital asset regulation is not just a technical debate about market structure, but a proxy battleground for institutional independence, surveillance power, and political expediency.
From the unusual intervention of the Federal Reserve chairman to the increasing crackdown on crypto legislation in Congress, the regulatory landscape is changing and becoming more politicized.
Powell Breaks Silence on DOJ Probe, Warns of Threat to Federal Independence
Federal Reserve Chairman Jerome Powell made one of the most important public statements of his tenure on Sunday, arming the Trump administration's Justice Department to pressure the central bank to cut interest rates.
Powell confirmed that the Justice Department has served the Fed with a grand jury subpoena in connection with his June 2025 congressional testimony regarding the multi-year renewal of the Federal Reserve's headquarters. While the investigation focused on information related to the project, Powell framed the incident in a broader context.
“The threat of criminal charges is a result of the Federal Reserve setting interest rates based on a better assessment of what's in the public's best interest, rather than following the president's choices,” he said in a rare televised speech.
The implications extend beyond monetary policy. Powell warned that allowing criminal investigations to influence discretionary decisions risks subjecting economic judgment to political intimidation. For crypto markets – already sensitive to macro volatility – the episode highlights how regulatory stability depends not only on rules, but also on institutional norms.
A Tennessee judge halted the state's action against Calci
In a significant check on state-level enforcement, a federal judge in Tennessee has temporarily barred regulators from taking action against Kalshi in the speculative marketplace.
U.S. District Judge Aletta Trauger granted Kalshi a preliminary injunction and temporary restraining order against the Tennessee Sports Wagering Council and the state attorney general. The order stays where it should apply a cease and desist order while the case continues.
Judge Trauger said Kalshi would suffer “irreparable harm and loss” if the government's action went ahead and said the company could succeed in its claims. Crucially, without court intervention, Kalshi's rights may be violated, she added.
The ruling reinforces growing judicial skepticism over state attempts to regulate federally regulated financial products—a move that could have broader implications for derivatives-linked crypto products and on-chain prediction markets.
Senate delays market structure as bipartisan fault lines emerge.
Momentum behind comprehensive crypto legislation has cooled again after Senate Agriculture Committee Chairman John Boozman delayed the proposed markup of the Digital Asset Market Transparency Act until the end of January.
The delay follows negotiations with Democratic Leader Cory Booker as lawmakers try to finalize outstanding provisions covering regulatory authority, stablecoin products, defi protections and token issuance. While the bill seeks to divide oversight between the SEC and the CFTC, political time is becoming a growing obstacle.
As the 2026 midterm elections approach, some analysts now warn that a final passage could slip into 2027. The risk continues despite vocal support from the Trump administration and newly appointed SEC Chairman Paul Atkins, who has described this as a “big week for crypto” and urged Congress to move digital asset markets out of the regulatory gray zone.
New timeline, old tensions
Boozman later confirmed that the legislative text would be released at the close of business on January 21. His announcement of a committee markup at 3:00 p.m. on January 27 was followed by parallel action by the Senate Banking Committee, where senators reportedly filed 137 amendments to the CLARITY Act before their own markup.
“This timeline ensures transparency and allows for a thorough review,” Bozeman said, thanking Booker for continued bilateral cooperation.
However, the number of reforms highlights how major policy questions remain unaddressed—particularly in the treatment of enforcement authority, monitoring and decentralized systems.
Galaxy warns of “Patriot Act-style” crypto surveillance
Those concerns came into sharper focus after Galaxy Digital published a study note warning the Senate Banking Committee's draft bill that the Treasury Department would approve new powers reminiscent of the US Veterans Act.
According to Galaxy, the draft goes beyond the Digital Asset Market Transparency Act passed by the House, particularly in its approach to illegal financing. At issue is the crypto-specific “special measures” authority that allows the Treasury Department to designate foreign jurisdictions, financial institutions or entire categories of digital asset transactions as major money laundering.
Galaxy argued that such an authority risks creating overt enforcement tools that could slow legal activity, reduce liquidity and push innovation offshore — results regulators have repeatedly said they want to avoid.
Coinbase withdraws support, Senate banking delays
When Coinbase officially withdrew support for the Senate Banking Committee bill, chairman Tim Scott pushed for the committee's proposed markup, prompting industry unrest.
CEO Brian Armstrong said the exchange was unable to return the bill within 48 hours of reviewing the article, despite its goal of giving the CFTC oversight of the clearing of token allocations and the spot market.
The reversal exposed the gap between lawmakers who want broad enforcement authority and industry players who demand predictable, proportionate rules. It also underscored a broader reality: Without industry buy-in, even bipartisan legislation risks stalling.
New York criminalizes unauthorized crypto activity
At the regional level, enforcement rhetoric has intensified. Alvin Bragg, speaking at New York Law School, urged lawmakers to criminalize unlicensed crypto operations, citing what he described as a “$51 billion criminal economy.”
Bragg argues that regulatory loopholes allow illegal proceeds from guns, drugs, fraud and terrorist financing to flow through unlicensed platforms and with limited consequences. Closing those loopholes is now a top law enforcement task, alongside gun violence and organized retail theft, he said.
While New York has long held a strong position on the licensing regime, Bragg's comments renew the need for criminal penalties—not just civil enforcement—in crypto regulation.
The big picture
Taken together, this week's developments show a regulatory environment under strain. Federal independence, state power, congressional consent, and civil liberties are all at odds in the crypto debate. Markets are not just responding to policy outcomes, but to the political process behind them.
For digital asset firms and investors, the message is clear: regulatory risk is increasingly linked to political risk. Until lawmakers decide not only who controls crypto, but how much power regulators should wield, the industry remains in a state of caution.
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