Galaxy Digital recently warned that a new U.S. Senate bill would grant the Treasury new financial surveillance capabilities in a massive way today. The proposal, introduced by the Banking Committee, would allow authorities to freeze digital asset transactions without the need for a prior court order. According to the research firm, this regulatory framework represents the largest expansion of state oversight since the Patriot Act was enacted previously.
On the other hand, the report published this Tuesday highlights the creation of an authority for “special measures” specifically targeting the cryptocurrencies ecosystem now. This tool would empower the Department of the Treasury to designate foreign jurisdictions or financial institutions as primary money laundering concerns.
Likewise, the regulations would allow for the imposition of severe restrictions on fund transfers considered risky. Therefore, the government would have control to condition any movement of assets under its own criteria.
In addition to special measures, the draft introduces a formal temporary suspension mechanism for transactions of digital assets in an accelerated manner. Under this framework, government agencies could request stablecoin issuers to freeze funds for a period of thirty days.
However, these requests would not require the intervention of a specialized court, which has raised alarms. In this way, service platforms would be forced to comply with blocking orders without any immediate appeal.
The United States Treasury would obtain unprecedented powers over the market
On the other hand, the proposed legislation seeks to integrate decentralized application user interfaces into the current financial sanctions regime. The text defines distributed ledger application layers as entities obliged to apply risk controls and constant monitoring.
Since web interfaces are the primary entry point, the Treasury would issue guidelines to block sanctioned activities. Consequently, decentralized protocol developers would face greater regulatory pressures to comply with the new state requirements.
It is important to remember that the Patriot Act was implemented after terrorist attacks to combat illicit activities through mass surveillance. Galaxy Digital maintains that this new bill proposal replicates much of that structure in the technological field today. Compliance obligations are also contemplated for individuals who maintain significant control over the functioning of protocols. Thus, the distinction between centralized platforms and DeFi systems could vanish due to these upcoming laws.
How will this new regulatory framework affect investor privacy?
Despite oversight risks, the Crypto Council for Innovation believes the draft shows a necessary political commitment. However, for retail investors, these measures could mean a total loss of financial privacy in all their transactions. While the project preserves the right to self-custody, scrutiny over exit ramps will be rigorous. In this way, the market could experience a migration of capital to environments that are less restrictive outside of U.S. jurisdiction.
Finally, the vote on this regulatory framework is scheduled for Thursday in the Senate Banking Committee. Meanwhile, the Agriculture Committee has decided to delay its review until the end of this month due to lack of consensus. Without a doubt, the outcome of this legislative battle will define the future of innovation and national economic freedom. Therefore, the industry remains attentive to possible amendments that seek to balance security with civil rights.
