The United States Senate passed the 2024 National Defense Authorization Act (NDAA) on Thursday. The bill contains a provision targeting crypto mixers, privacy coins, stablecoins, and institutions involved in crypto trading.

Generally, the NDAA sets the agenda on how the Department of Defense can utilize federal funding. But this particular bill affects several industries, including the digital asset ecosystem, and might have extensive implications for crypto in case of a successful further passage.

The new law will require authorities to strengthen crypto regulations across the board. Specifically, the NDAA targets crypto mixers along with privacy coins, designed to hide user identities and make it harder to trace blockchain transactions. The amendment will establish examination standards for the crypto industry to ensure businesses comply with relevant sanctions and anti-money laundering laws.

The NDAA bill also includes compliance provisions for stablecoin issuers. According to observers, the bill would tighten KYC/AML regulations for stablecoin companies, many of which currently operate without robust compliance measures.

Meanwhile, a former FED Board analyst Brendan Malone notes in the fresh report by the investment firm Paradigm that, in some sense, stablecoins present lower risk than bank deposits due to the strict and straightforward manner issuers manage their reserves:

“Stablecoins do not inherently pose these same risks [as banks]. Issuers of U.S. dollar-pegged stablecoins that, by their terms, are redeemable at par on demand, might hold a reserve of assets to back up their redemption promises. These reserve assets might match the stablecoins outstanding one-to-one, consist of central bank liabilities or short-dated Treasuries, are segregated from the issuer’s own-assets, are protected from creditor process, and are subject to assessments or audits,”

— Brendan Malone, The Future of Payments Includes Stablecoins

It’s not uncommon for the Senate to include non-defense-related amendments in military bills such as the NDAA. The House of Representatives also passed its own version of the bill last week.

The bill received a majority vote in favor and now proceeds to the negotiation stage between the Senate and the House of Representatives, during which they’ll negotiate on a version that can pass both chambers.

The U.S. crypto industry has been subject to regulatory uncertainty while other countries are setting clearer rules. While the provision contained in the Senate military bill may not cover the entire crypto industry, it represents an option for a first step in providing a sort of regulatory clarity for crypto in the US.

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