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Elizabeth Warren’s Anti-Digital Asset Bill Unveiled and Why it’s a Bad Idea

1. Expanded AML/CFT Requirements: The bill extends obligations under the Bank Secrecy Act to a broad range of crypto participants, including:
   • Digital asset wallet providers (both custodial and self-hosted/unhosted).
   • Cryptocurrency miners, validators, and other network participants who secure or validate transactions.
   • Other entities in the decentralized finance (DeFi) ecosystem, potentially including software developers and node operators. These parties would be classified as “money service businesses,” requiring them to implement know-your-customer (KYC) protocols, verify user identities, and report suspicious transactions to the Financial Crimes Enforcement Network (FinCEN).
2. Ban on Privacy Tools: The legislation seeks to prohibit financial institutions from interacting with privacy-enhancing tools like digital asset mixers (e.g., CoinJoin), which Warren views as enablers of illicit finance by obscuring transaction trails.
3. Stablecoin Regulation: Warren has emphasized that any new crypto legislation, including frameworks for stablecoins (a $157 billion market), must incorporate the full suite of AML tools requested by the U.S. Treasury to prevent exploitation by bad actors.
4. Targeting Illicit Finance: The bill addresses specific threats, such as North Korea’s estimated $3 billion in crypto thefts over five years to fund its nuclear weapons program, Iran’s use of crypto to evade sanctions, and Hamas’ fundraising efforts (e.g., up to $134 million linked to digital wallets since 2021).

• Initial Introduction (2022): Co-sponsored by Marshall, the bill gained attention post-FTX collapse but did not advance significantly in the 117th Congress.
• Reintroduction (2023): By September 2023, the coalition grew to include Senators Joe Manchin (D-W.Va.), Lindsey Graham (R-S.C.), and 11 additional co-sponsors, such as Dick Durbin (D-Ill.) and Gary Peters (D-Mich.), totaling 19 senators by early 2024. This reflects bipartisan concern over crypto’s illicit uses.
• Current Status: As of March 2025, the bill has not yet been approved by the Senate Banking Committee or reached a full Senate vote. Its path remains uncertain amid a divided Congress and competing crypto legislation (e.g., industry-backed bills in the House).

• Supporters: Warren’s efforts have garnered backing from national security experts, the Treasury Department, and even some Wall Street bankers (e.g., the Bank Policy Institute), who agree that crypto should face equivalent AML scrutiny. Big bank CEOs, questioned by Warren in December 2023, also endorsed applying AML rules to crypto firms.
• Opponents: The crypto industry, led by groups like the Blockchain Association and Coin Center, fiercely opposes the bill. Critics argue it:
  • Threatens privacy by targeting self-hosted wallets and privacy tools.
  • Imposes unworkable KYC requirements on decentralized entities like miners and validators, potentially driving innovation overseas.
  • Risks stifling a nascent industry, with the Chamber of Digital Commerce warning of “hundreds of billions” in lost value for U.S. startups. A February 2024 Blockchain Association letter, signed by 80 former military and security officials, claimed the bill undermines national strategic advantages.