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.
Treasury Powers at the Center of the Debate
Galaxy highlights several provisions that it argues dramatically widen government oversight:
- 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.
Galaxy argues that, taken together, these measures would fundamentally reshape how financial privacy works in the digital asset ecosystem.
Potential Impact on Innovation and Privacy
The report cautions that the proposed authorities could have unintended consequences. Galaxy notes 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.
From an industry perspective, the concern is less about compliance itself and more about precedent. Galaxy frames the draft as a structural shift that embeds crypto into a surveillance model originally designed for post-9/11 banking risks, rather than adapting oversight to the unique properties of decentralized systems.
Legislative Context
The bill is currently under discussion in the Senate Banking Committee and forms 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, DeFi treatment, and the division of authority between regulators.
As the draft evolves, Galaxy’s warning adds pressure to lawmakers to clarify safeguards, judicial oversight, and limits on executive power, before the bill advances further through Congress.
