A new analysis from Galaxy Research is raising alarms over the latest draft of the U.S. Senate’s crypto market structure bill, warning it could amount to the most significant expansion of government financial surveillance powers since the Patriot Act of 2001. According to the report, the concern is not limited to crypto regulation itself, but to the scope of authority the legislation would grant to federal agencies, particularly the U.S. Treasury Department, over digital asset activity.
Temporary transaction freezes: The draft framework could allow Treasury or other agencies to freeze certain digital asset transactions for up to 30 days without a court order, a power that exceeds current crypto-specific authorities.
Expanded “special measures”: Similar to tools introduced under the Patriot Act, the bill would broaden Treasury’s ability to designate specific jurisdictions, platforms, or categories of digital asset transactions as money-laundering risks.
DeFi and interface obligations: New language aimed at “distributed ledger application layers” could extend sanctions and AML responsibilities beyond centralized intermediaries to decentralized finance (DeFi) interfaces and software layers. The text defines these layers, including web-hosted interfaces used to access blockchains and DeFi protocols, and directs Treasury to issue guidance requiring them to screen wallets and block sanctioned activity.
Galaxy argues that, taken together, these measures would fundamentally reshape financial privacy in the digital asset ecosystem. The report cautions that aggressive surveillance powers may discourage onshore innovation, push developers and capital to more permissive jurisdictions, and blur the line between traditional banking oversight and open-source software regulation.
The legislative context shows the bill is currently under discussion in the Senate Banking Committee as part of a broader effort to establish a comprehensive U.S. crypto market structure framework. Alongside surveillance provisions, lawmakers are also debating contentious issues such as stablecoin rewards, with a revised draft proposing to prohibit digital asset service providers from paying yield simply for holding payment stablecoin balances. Industry responses have been mixed, with the Crypto Council for Innovation viewing the text as evidence of engagement, while Coinbase has warned it could withdraw support if reward programs are curtailed too aggressively.
The Senate Banking Committee is preparing for a markup this week, while the Senate Agriculture Committee plans to release its own text by January 21, with a markup scheduled for January 27. Both versions would need to be reconciled before a full Senate vote, followed by negotiations with the House.
