Senate prepares to move on crypto while government shutdown threat looms

Topline

• Senate Ag moves forward with crypto market structure markup

• Trump highlights affordability agenda at Davos

• CA launches VC diversity reporting website 

• AI’s wake-up call to Congress

• Quick hits

Senate Ag moves forward with crypto market structure markup

The Senate Agriculture Committee is moving forward with an updated crypto market structure framework despite the absence of bipartisan support. The latest version, which largely reflects the House-passed CLARITY provisions, focuses on digital commodity intermediaries and expands the CFTC’s authority to regulate crypto spot markets. Despite months of bipartisan negotiations, key policy differences remain unresolved:

• Ethics: A central sticking point for Democrats is the absence of language restricting public officials and their families from endorsing, issuing, or profiting from digital assets while in office.

• Consumer protection: Democrats argue that the bill provides inadequate protection for retail customers on DeFi platforms and whether these platforms should face traditional financial regulatory requirements.

• Quorum requirements: Democrats sought binding requirements to ensure the CFTC and SEC maintain bipartisan commissions, while the bill’s non-binding guidance language appears insufficient to address their concerns.

• AML and illicit finance: Democrats pushed for stronger anti-money laundering provisions to close perceived loopholes related to self-custody, intermediaries, and decentralized platforms.

Why it matters: The decision to move forward without Democratic support marks a shift from earlier bipartisan efforts and complicates Senate passage, which will require a bipartisan vote. While industry reaction has been positive, this version does not fully resolve the long-running debates over asset classification, stablecoin rewards, and DeFi regulation that stalled Senate Banking Committee efforts to advance its version earlier this month. Meanwhile, Senate Banking remains stalled. Reports indicate that a Senate Banking markup may not be rescheduled until late February or early March, as negotiations continue between crypto firms and the banks, and the Senate tees up potential action on housing legislation in support of President Trump’s affordability agenda.

Trump highlights affordability agenda at Davos

At the World Economic Forum in Davos, President Donald Trump made housing affordability a centerpiece of his address, highlighting domestic cost-of-living concerns against a backdrop of geopolitical tensions and tariff threats tied to Trump’s territorial ambitions for Greenland. Trump framed his housing proposals as part of a broader economic agenda ahead of the 2026 midterms, using the global stage to emphasize pocketbook issues that resonate with American voters. Key affordability proposals from Davos:

• Protecting the housing supply from Wall Street: Trump highlighted a new executive order aimed at limiting the ability for large institutional investors (i.e., private equity) to purchase single-family homes, arguing it would help first-time buyers compete in tight markets.

• Lowering mortgage costs: Trump outlined plans for the federal government to purchase up to $200B in mortgage-backed securities to drive down mortgage rates, while continuing to pressure the Federal Reserve for broader interest rate cuts.

• Broader affordability push: Trump also called on Congress to cap credit card interest rates at 10% for one year to make it easier for Americans to save for home purchases. Notably, Trump backed away from a 401(k) down payment proposal floated by his administration, praising the strong performance of retirement accounts and suggesting that protecting balances should take priority.

Why it matters: Elevating housing affordability at Davos reflects Trump’s turn toward economic populism as a midterm strategy, a stance that ironically aligns more closely with progressive policy aims to promote affordability over Wall Street interests. The broader response among policymakers has been more skeptical. Institutional investors account for only a small percentage of home purchases, while the main affordability drivers like supply constraints, zoning, and construction costs remain largely unaddressed. Critics also warn that price controls on credit and payments could have downstream effects that limit credit availability for higher-risk consumers, slow financial innovation, and entrench incumbents that can absorb regulatory costs more easily than startups.

CA launches VC diversity reporting website

In anticipation of the 2026 VC diversity reporting mandates, the California Department of Financial Protection and Innovation (DFPI) launched a new website providing initial guidance on the upcoming reporting requirements for VC firms, signaling that compliance timelines remain on track.

Background: In 2023, California enacted legislation aimed at increasing transparency around diversity in the venture capital industry. Under the requirements, VC firms with a California nexus will be required to collect and annually report aggregated, anonymized demographic data on founding team members of portfolio companies in which they invest. Required disclosures include gender identity, race, ethnicity, sexual orientation, disability status, veteran status, and California residency for each founding team member, as well as investment amounts and percentages allocated to companies founded by individuals from each identified group. Founder participation is voluntary, but firms must document outreach efforts and responses. DFPI has posted a standardized survey form for fund managers to distribute to founding teams.

Implementation: Beginning March 1, 2026, VC fund managers must register with DFPI by submitting identification information, including firm name and designated point of contact details, though the registration portal is not yet active. The first annual reports are due on April 1, 2026, covering investments made in 2025. DFPI intends to allow a 60-day cure period after notice of non-compliance, after which funds could face penalties of up to $5,000 per day.

Why it matters: California’s VC diversity reporting law will impose a significant new compliance obligation on venture capital funds at a time when federal policy has shifted in the opposite direction. Legal challenges still remain possible, as similar state diversity initiatives have faced constitutional scrutiny. However, at present, these requirements are coming for virtually all VC fund managers. Firms should consider assessing portfolio company communications, data collection workflows, and compliance processes to begin preparing reports for submission. Carta will continue to provide updates as DFPI releases additional information.

AI’s wake-up call to Congress

Anthropic CEO Dario Amodei issued a stark warning that superhuman intelligence could emerge within years, causing civilization-level harm absent swift intervention. His warning was blunt: The window for proactive intervention is closing, and policymakers should prepare the public for disruptive change. Amodei argues AI could disrupt up to 50% of entry-level white-collar jobs, amplify national-security risks, and lower the barrier for mass harm, calling on governments, industry, and wealthy individuals to act now, including by:

• Implementing federal AI transparency legislation, requiring AI companies to disclose model risks, failures, and misuse, along with safety defenses built into their systems;

• Cutting off sales of advanced chips and AI-enabling technologies to China

• Preparing to tax future AI-generated wealth and redistribution, warning that unchecked concentration will trigger political backlash.

Why it matters: Amodei is moving beyond abstract safety concerns and into concrete regulatory asks: transparency mandates, export controls, and wealth redistribution. That perspective stands in tension with the Trump administration’s AI posture, which prioritizes speed, dominance, and permissive regulation to avoid ceding ground to China. The result is a sharpening policy divide: AI as critical infrastructure requiring guardrails versus AI as an engine of national power that must scale fast. The latest warnings could raise the pressure for federal action, shifting the debate from whether to regulate AI to how far and how fast Congress should go in regulating AI development.

Quick hits

• SCOTUS signals support for Fed independence. The Supreme Court appeared skeptical of President Trump’s attempt to fire Fed Governor Lisa Cook, with justices across the ideological spectrum questioning whether presidents can dismiss Fed officials without judicial review. Justice Brett Kavanaugh warned the administration’s position would “weaken, if not shatter” Fed independence. The Court seems likely to block Cook’s immediate removal as political pressures on the central bank intensify, including a DOJ criminal investigation of Fed Chair Jay Powell, which has been characterized by Powell and others as politically motivated threats to influence monetary policy and lower rates. The Fed is expected to hold interest rates steady following its first policy meeting of 2026.

• Private credit investors are cashing out in droves. Individual investors are pulling money from private credit funds at the fastest pace since the boom began. Several large retail-oriented vehicles saw redemption requests from around 5% of shareholders late last year. The withdrawals follow sliding performance and dividend cuts as interest rates have fallen. The timing of the spike in redemptions comes at an awkward time when policymakers are pushing to expand retail access, including through retirement accounts. While inflows still exceed outflows, private credit is entering its first real retail stress test, which will revive concerns around liquidity and transparency and underscore the need for timely and accurate valuations and investor reporting.

• Odds of government shutdown are increasing. The deadly shootings in Minneapolis by federal immigration agents have raised the odds of another government shutdown. Senate Democrats oppose funding for the Department of Homeland Security (DHS) without new accountability measures. To avoid a partial government shutdown, the Senate must pass a six-bill funding package (including DHS) before funding expires Friday night.

Upcoming events

• Senate Agriculture Committee hearing: Market Structure Legislation - January 29 at 7:30 a.m. PT/10:30 a.m. ET

• SEC – CFTC Harmonization: U.S. Financial Leadership in the Crypto Era - January 29 at 11:00 a.m. PT/2:00 p.m. ET

• House Financial Services Committee hearing: The Annual Report of the Financial Stability Oversight Council - February 4 at 7:00 a.m. PT/10 a.m. ET

• House Financial Services Committee hearing: A New Day at the SEC: Restoring Accountability, Due Process, and Public Confidence - February 4 at 11 a.m. PT/2:00 p.m. ET

• Carta Event: Fund Economics: Demystifying Operations, Fees, and Expenses - February 5 at 10:00 a.m. PT/1:00 p.m. ET

• House Financial Services Committee hearing: Oversight of the Securities and Exchange Commission - February 11 at 7:00 a.m. PT/10 a.m. ET

• SEC Small Business Advisory Committee: Regulatory Framework for Finders - February 24 at 7:00 a.m. PT/10:00 a.m. ET

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