CLARITY Stalls, Crypto Moves On

What happened

On 15 September, the U.S. Senate failed to advance the CLARITY Act. The procedural vote received 49 votes in favor and 50 against, short of the 60 required to start considering the bill. This was not a vote on final passage: the Senate never formally moved onto the legislation.

As a reminder, CLARITY aims to establish a comprehensive U.S. market structure for digital assets, notably by clarifying the roles of the SEC and CFTC and setting rules for crypto issuers, exchanges and intermediaries. As discussed in our previous article (here or here), its adoption would derisk the crypto industry.

Impact on our Investment Case

Why did Democrats reject the bill?

The final disagreement was primarily about political ethics.

Democrats wanted stronger safeguards preventing senior public officials from benefiting financially from crypto businesses while in office. Republicans made substantial last-minute concessions: the final proposal incorporated what its sponsors described as 126 changes requested by Democrats, while the White House accepted much of a bipartisan ethics framework.

That was not enough. Democrats argued that the enforcement mechanisms remained insufficient, while a few Republicans retained separate concerns about stablecoin rewards and potential deposit outflows from community banks.

Is the CLARITY Act dead?

Not formally. Senator Thom Tillis (Republican) preserved the option of a future vote by switching his vote once passage was no longer possible. But a 2026 agreement has become considerably less likely.

The Senate could try again if negotiators reach a compromise, particularly on ethics. A second window could emerge after the November midterms during the lame-duck session. Otherwise, market-structure legislation would need to return in the next Congress. The November elections also introduce additional uncertainty: changes in congressional control, committee leadership, or legislative priorities could push comprehensive market-structure legislation further out.

Markets have repriced that possibility sharply. Polymarket's probability of CLARITY being signed into law this year has fallen to around 5%, compared with 29.5% on Monday afternoon.

Importantly, much of the work is unlikely to disappear. More than a year of negotiations has produced detailed compromises on token classification, DeFi, custody, stablecoins, and developer protections that could serve as the basis for a future bill.

The bigger loss is durability. Legislation would have anchored the new framework in law, making it harder for a future administration to reverse course. SEC and CFTC rules can move the industry forward, but remain more exposed to changes in political leadership.

Why didn’t it trigger a broader crypto sell-off?

The setback was more visible in crypto-related equities than in crypto assets themselves. Coinbase and Circle Internet Group fell around 9% following the vote, compared with roughly 4% for Bitcoin. This makes sense: CLARITY primarily targets the regulatory framework governing issuers, exchanges and other intermediaries rather than digital assets.

A positive vote would actually have been the surprise. More importantly, CLARITY is no longer the industry's only path toward regulatory clarity.

The SEC has already started building a crypto-specific framework. This push is backed by the Trump administration, which has made regulatory clarity for digital assets an explicit policy priority. In August, it proposed Regulation Crypto Assets, creating tailored capital-raising exemptions of up to $5mn for startups and $75mn annually for larger offerings, alongside a conditional safe harbor. In September, the agency proposed modernizing transfer-agent rules to accommodate blockchain-based securities.

Further SEC/CFTC action could address token classification, self-custody, tokenized securities and new products such as perpetual futures. We would expect this administrative route to accelerate now that the congressional route has stalled.

It cannot fully replace CLARITY. Congress is still needed for a durable nationwide framework governing non-security digital-asset spot markets. But it can remove substantial regulatory friction in the meantime. And for stablecoins, the impact is even smaller: the GENIUS Act already provides their core U.S. regulatory framework rather than CLARITY.

Our Takeaway

CLARITY's failure removes an important near-term catalyst. A comprehensive law would have reduced regulatory uncertainty for crypto exchanges, issuers and other intermediaries, while making today's more supportive regulatory direction harder for a future administration to reverse. The sharp reaction in names such as Coinbase and Circle Internet Group therefore makes sense.

But the impact is uneven across the ecosystem. Stablecoins are largely governed by the GENIUS Act, while tokenization continues to progress under existing securities regulation and forthcoming SEC rules. Robinhood's stock-token initiative, Nasdaq's investment in Kraken's parent company, and Circle Internet Group's Arc network all illustrate that product adoption is moving ahead independently of CLARITY.

For our portfolio, the failed vote removes a potential catalyst rather than changing the structural investment case. We maintain diversified exposure across exchanges, infrastructure providers and digital-asset treasury companies. CLARITY could have accelerated adoption and reduced regulatory risk, but it was never the sole driver of our investment case. The SEC and CFTC will partly fill the gap, while blockchain adoption continues to broaden across financial markets.