The Digital Asset Market Clarity Act has been the talk of the town in the world of cryptocurrency. Often described as “market structure legislation,” the bill is supposed to set the foundation for how cryptocurrency exchanges and other businesses operate. In other words, it establishes the foundation for how the cryptocurrency market is structured. However, one part of the bill has not gotten nearly enough attention. That part says how the market should be surveilled.
Another Brick in the Wall
Regular readers know the Bank Secrecy Act all too well. This regime requires financial institutions to surveil customers and report them to the government. Now, it would be reasonable to assume that “financial institutions” is defined as banks and credit unions. However, that is only the tip of the iceberg. Congress has steadily added to this definition for 55 years. The definition now includes businesses like stockbrokers, currency exchanges, pawn shops, travel agencies, telegraph companies, car dealerships, and even the United States Postal Service.
The Digital Asset Market Clarity Act adds to that list once again. Under Title II Section 201(a), cryptocurrency brokers, dealers, and exchanges will officially be added to the list.
At first glance, policymakers almost appear to deserve credit for making sure these requirements only apply to third-party services like Coinbase, Kraken, and Robinhood. However, in a moment of legislative whiplash, the “protections” for self-hosted wallets (Title VI Section 605(c)) are immediately followed by a clarification that no such protections actually exist (Title VI Section 605(d)).
Leave Those ATMs Alone
Perhaps the hardest-hit section of the cryptocurrency industry is ATMs (Title II, Section 205). For those unfamiliar, cryptocurrency ATMs are essentially the same as any other ATM. Cryptocurrency ATMs simply let you walk up and buy cryptocurrency with cash.
Unfortunately, high-profile cases of elderly Americans being scammed into sending money through these ATMs have clearly pulled on policymakers’ heartstrings. The Digital Asset Market Clarity Act would not only bring ATMs under the Bank Secrecy Act but also set limits on how much money a customer can use, establish holding periods, and more. For instance, the bill would see to it that cryptocurrency ATMs are:
- Labeled as money transmitting businesses
- Required to limit activity to one customer per account
- Required to hold money for 72 hours before allowing customers to send money
- Required to set transaction limits (amount to be determined)
- Required to blacklist wallets “affiliated with fraudulent activity”
- Required to report the locations of ATMs
- Required to report company information
- Required to show a disclosure on screen about fraud that customers must acknowledge
It is heartbreaking that people are being tricked by scammers into sending money through cryptocurrency ATMs. The same is true when people are tricked by scammers into sending money through gift cards, handing over shoeboxes filled with cash, or sharing their banking information. However, the common denominator here is that scammers are the problem. That is who the government should be going after.
Special Measures Coming Back to Life
To cap things off, a piece of surveillance legislation wouldn’t be complete without expanding the PATRIOT Act. And the Digital Asset Market Clarity Act does just that. It would do so by expanding enforcement of special measures (Title III, Section 303). This enforcement falls under 31 U.S.C. Section 5318A, and attempts to expand it just won’t die.
Back in 2022, Representative Jim Himes (D‑CT) repeatedly introduced legislation to expand the Department of the Treasury’s ability to use its “special measures” authority to blacklist transactions involving anyone outside the United States. Originally, Himes wanted to expand this enforcement to apply to cryptocurrency. However, that wasn’t all. He also wanted to eliminate both the 120-day limit and the public notice that is required for these enforcement actions. After facing backlash, Himes reintroduced the bill with the limit and public notice intact. Still, it failed to gain support.
It has been four years since this legislation made the rounds, but it’s back again. The Digital Asset Market Clarity Act seems to be the latest attempt to give the Treasury Department more power under the PATRIOT Act. It’s good that the limited checks and balances in place are maintained, but the proposal still suffers from the same flaw: it ignores that cryptocurrency is inherently borderless. Therefore, the Treasury could use this expanded authority to prohibit people from using cryptocurrency since the technology allows transactions to be validated by miners located outside of the United States. For a technology built on being decentralized and borderless, this section could end up being a major setback.
Conclusion
If you don’t like financial surveillance (or the idea that the government should be regulating everything under the sun), Treasury Secretary Scott Bessent says you should get out of the country. Specifically, he said you should go live under a dictator.
More reasonable people may be tempted to make a lighter argument. Although they oppose financial surveillance, they might say, “It’s just making cryptocurrency companies do what traditional companies have to do” or “Now is not the time.” But both arguments are misplaced.
First, it’s true that much of the Digital Asset Market Clarity Act is bringing cryptocurrency into the existing system. But the existing system is seriously flawed. Billions of dollars are spent on millions of financial surveillance reports with next to nothing to show for it. All the while, Americans are subject to sweeping surveillance that violates long-assumed standards of privacy.
Second, if now is not the time to fight financial surveillance, then when is the time? Unfortunately, that type of thinking is likely what allowed 55 years of ever-expanding financial surveillance in this country. Congress can’t keep getting away with it. Now is the time to take a stand and say enough—not after the current surveillance structure is even further cemented in financial markets.
Financial surveillance has been steadily expanding for 55 years. The Digital Asset Market Clarity Act is only the latest expansion. But the fight doesn’t stop with sparing cryptocurrency. The fight for financial privacy must also extend to traditional finance (yes, even car dealerships). Rather than rope new innovations into the old system, Congress should recognize that people want to reclaim their privacy. Congress should embrace that right across the entire financial system.