US crypto law could be the biggest expansion of financial surveillance since 2001, says Galaxy

Source: PortaldoBitcoin Original Title: US Crypto Bill Could Be the Largest Expansion of Financial Surveillance Since 2001, Says Galaxy Original Link: A warning from Galaxy Research pointed out that a bill regarding the structure of the circulating cryptocurrency market in the US Senate Banking Committee would significantly expand the country’s financial surveillance powers. The company argues that the new Treasury authorities, focused on decentralized finance frontends and transaction freezing, could represent the largest expansion of this kind since 2001.

The analysis focuses on certain provisions of the draft that would grant the US Department of the Treasury new escalation tools, including expanding “special measures” authority over digital assets and creating a legal framework to enable transaction blocks without a court order.

The draft “includes substantially expanded financial surveillance authorities to combat financial crimes,” wrote Alex Thorn, head of research at Galaxy Digital. If enacted into law, this “would represent the largest single expansion of financial surveillance powers since the USA PATRIOT Act,” Thorn argued.

Thorn was referring to the legislative package created after September 11, enacted in 2001, which significantly expanded federal surveillance and financial monitoring powers, reshaping how US authorities track, share, and intervene in financial crimes within the banking system.

The warning comes as lawmakers continue debating how far the Treasury’s role in cryptocurrency activity oversight should go, with parallel efforts in Congress aimed at clarifying market structure and limiting developers’ liability under federal law.

The note describes a “temporary blocking” authority that would create a formal framework to pause digital asset transactions at the authorities’ request, along with a legal safe harbor for companies acting in good faith.

“It is a transaction interruption mechanism designed to expedite authorities’ requests and provide protection against liabilities, enabling stablecoin issuers or service providers to freeze funds quickly, without a court order,” the document states.

Galaxy also highlighted the language that “explicitly creates the concept of a ‘distributed ledger application layer,’” requiring the Treasury to clarify sanctions and anti-money laundering obligations for frontends operating in the US.

Some gaps and risks

Industry observers say the debate exposes unresolved dilemmas between compliance, privacy, and the practical limits of cryptocurrency adoption in real-world business.

The debate around the bill “reflects a broader change faced by legislators,” who previously dealt with concerns about “choosing between transparency and privacy,” said Rob Viglione, CEO of zero-knowledge technology company Horizen Labs.

“Companies and institutions need confidentiality in sensitive business activities, while regulators need auditability. What has changed is that this need is no longer theoretical,” he said.

Activity within Ethereum-based ecosystems is increasing, Viglione added, noting that this means regulators will need to assess how to approach compliance “without confusing auditability with expanded surveillance or shifting oversight obligations to non-custodial software layers.”

“The regulatory ambiguity that treats infrastructure as a monitoring tool,” instead of “allowing controlled disclosure within existing legal frameworks,” creates real risks for the sector, Viglione added.

Although the released draft is “a step forward,” it “still leaves large gaps for payroll and real-world business operations,” said Megan Knab, CEO and founder of Franklin, a financial operations platform supporting on-chain payroll.

Stablecoins are “formally treated as money at the federal level,” but “at least eight US states still prohibit their use in payroll payments,” she said, adding that this demonstrates “the mosaic of state laws and banking policies that employers still need to navigate.”

“Until these contradictions are resolved,” companies involved with digital assets and other on-chain operations will continue to face difficulties, and their prospects will remain “difficult, even with clearer federal guidance,” Knab concluded.