A Stroke of GENIUS?: The Legal Impact of Cryptocurrency Regulations

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Last July, President Trump signed the GENIUS (Guaranteeing National Infrastructure in U.S. Stablecoins) Act into law, enacting the first major step towards cryptocurrency regulation. The GENIUS Act provides a long-awaited legal framework surrounding a type of cryptocurrency called stablecoin. Stablecoin balances the benefits of cryptocurrency, including low transaction costs and separation from traditional financial institutions, with the reliability of being pegged to a mainstream fiat currency like the U.S. dollar. Although the GENIUS Act only covers stablecoin, it represents a critical shift towards federal oversight in an inherently decentralized and rapidly developing technological sphere.

Cryptocurrencies are characterized by legal, economic, and political contradictions, making policy conversations somewhat inaccessible to the general public. Bitcoin, the first major cryptocurrency, was invented by the pseudonymous Satoshi Nakamoto in 2008. This technology was revolutionary because it served as an anonymous, decentralized payment system that was essentially divorced from prevailing financial institutions and any kind of government regulation. Essentially, Bitcoin allowed users to create a “blockchain,” a digital ledger of transactions verified by computing power, replacing banking institutions with code. Since 2008, numerous other cryptocurrencies have flooded the digital world, with Bitcoin’s market capital comprising around 0.3% of the world’s money supply by April 2024. 

However, the anonymity and independence from government oversight that made Bitcoin appealing to some investors also detracted from its pragmatism and trustworthiness. Cryptocurrency became increasingly associated with criminal activity, legal disputes, and financial risk. For instance, Bitcoin exchangers “BTCKing” Robert M. Faiella and Charlie Shrem pled guilty to operating an unlicensed money transmitting business that facilitated drug trafficking on the black-market website “Silk Road,” substantiating the association between Bitcoin crime. Similarly, the “death spiral” failure of the algorithmic stablecoin TerraUSD led to losses worth nearly $60 billion, illustrating how much risk stablecoin users were exposed to in the absence of strict regulations. These challenges fuelled calls for cryptocurrency regulation, contradictory to the technology’s roots in the desire for a decentralized means of exchange that would be entirely free from government intervention.

The GENIUS Act, which will be enforced starting in January 2027, was enacted to meet this growing need. Stablecoin transaction volumes exceeded the combined volumes of Visa and Mastercard in 2024, but the cryptocurrency was subject to little to no regulation around the world. Some of the GENIUS Act’s most significant provisions include 1:1 reserve requirements of cryptocurrency to physical currency or low-risk assets, anti-money laundering and counter-terrorism measures under the Bank Secrecy Act, and consumer protections. 

The act also explicitly defines stablecoin as distinct from securities or commodities, creating the basis for stablecoin to be regulated differently from these assets. Finally, the GENIUS Act only allows insured institutions approved and supervised by the Office of the Comptroller of the Currency to issue stablecoin. Thus, while the GENIUS Act abates much of the risk associated with cryptocurrency, at least with respect to stablecoin, it also sacrifices the independence that made cryptocurrency innovative and exposes a fundamental need for state regulation of large financial systems.

The Trump administration describes the GENIUS Act as a win, characterizing it as “a historic piece of legislation that will pave the way for the United States to lead the global digital currency revolution.” President Trump framed the legislation as an America-first policy that will promote investment and technological growth while also curbing crime and protecting consumers, claiming it fulfilled his promise to make the United States the “crypto capital of the world.” However, the legislation has not been as warmly embraced by other political leaders and thinkers. For instance, UC Berkeley’s Professor Barry Eichengreen voiced his concerns that: “If panicked customers force [stablecoin issuers] to sell [treasuries backing stablecoins], Treasury prices could collapse, sharply increasing interest rates and destabilizing other financial markets and our entire economy.”

Global leaders have also noted that the GENIUS Act may worsen “dollarization” around the world, making global financial markets increasingly dependent on the dollar and making American economic stability an increasingly worldwide problem. The Chinese state media urged the use of yuan-backed digital currencies, and European Central Bank President Christine Lagarde cautioned that U.S. dollar-dominated stablecoins could threaten European financial autonomy.

Perhaps even more alarmingly, high-profile New York prosecutors wrote a letter highlighting concerns that the GENIUS Act legally protects companies that issue stablecoins to “avoid significant regulatory requirements that are needed to combat financing terrorism, drug trafficking, money laundering, and especially cryptocurrency fraud.” They argued that the legislation lacked language mandating critical consumer protections, like ensuring that firms return stolen funds to victims of fraud. For example, they cited how the two largest stablecoin issuers, Tether and Circle, have already avoided returning funds to victims of fraud and profited off of cybercrime.

Any large scale medium of exchange requires some level of state legitimacy and regulation in order to gain public trust and provide consumers with a basic level of protection. While the GENIUS Act is a positive first step in this direction, it leaves much to be desired in terms of consumer protection. Furthermore, while one of the draws of cryptocurrencies was their separation from institutionalized banking and consequent independence from government instability, the GENIUS Act only increases global reliance on the U.S. dollar, increasing the scope of the fallout of a potential American financial crisis.

Cryptocurrencies are unfamiliar to many Americans, and perhaps even to many federal lawmakers. Attempts to regulate cryptocurrencies, primarily stablecoin, highlight the challenges legislators face as they try to keep up with an increasingly dynamic digital landscape. The core tensions of the GENIUS Act are echoed in policy debates surrounding artificial intelligence, biotechnology, and other emerging technologies. These incredibly complex innovations pose a sharp learning curve for policymakers and signify a critical moment in the legal sphere in which federal lawmakers must strive to create regulatory frameworks that are both lasting and adaptable.

Aditi Bhattacharjya a second-year studying Economics and International and Public Affairs at Brown University. She is a staff writer for the Brown Undergraduate Law Review and can be reached at aditi_bhattacharjya@brown.edu.

Isabella Gardiner is a sophomore studying history. She is an editor for the Brown Undergraduate Law Review and can be reached at isabella_gardiner@brown.edu.

Wesley Horn is a sophomore at Brown University studying History and Economics. He is an Associate Editor for the Brown University Law Review blog, and can be reached at wesley_horn@brown.edu.