Senators on Tuesday voted to block the Clarity Act from moving forward, setting back efforts to establish a comprehensive regulatory framework for the crypto industry.
The Digital Asset Market Clarity Act received 50 votes for and 49 against the motion to proceed, short of the 60 votes needed to advance, a threshold that would have required at least seven Democratic “yes” votes and all 53 Senate Republicans.
Sen. Elizabeth Warren (D-Mass.) has been an outspoken critic of the legislation, saying it “fails to adequately protect investors, our financial system, and our national security. However, Republicans say the latest draft included more than 100 revisions Democrats requested, including stricter ethics guidelines.
The bill is over 600 pages long and would have marked the first federal regulation of the U.S. crypto sector. A version of the bill cleared the House last year, but it encountered resistance in the Senate.
For the crypto industry, Tuesday’s vote marked the first step toward Senate consideration of the Clarity Act, opening the path to further negotiations before returning to the House for additional approval.
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Defining crypto enforcement jurisdiction
Felix Shipkevich, a law professor at Hofstra University and founder of a New York City-based fintech-focused law firm, says the legislation’s benefits outweigh its drawbacks.
“From a purely regulatory perspective, this legislation draws the line between the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission,” Shipkevich told Yahoo Finance in an email. “If adopted in its current form, it will spell out when a digital asset will be treated as a commodity and when a security.”
He believes that could clear up the current uncertainty many exchanges, broker-dealers, and other market participants face — and ultimately guide “the path to registration with the appropriate federal agency.”
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Braden Perry, partner at the Kennyhertz Perry law firm in Kansas City and former CFTC senior trial attorney, spent years bringing enforcement cases before the federal agency.
“The hardest fights were never about the fraud. They were about jurisdiction. Regulation by enforcement means a company learns the rules when it gets sued. That is backward,” Perry told Yahoo Finance. “A statute that tells you upfront whether the SEC or the CFTC is your regulator fixes a problem the agencies have been litigating for a decade.”
Businesses can work with strict rules, he said, but not without any rules at all.
However, Perry warns that the bill “hands the CFTC a massive new retail market without a matching budget.” Without congressional funding, “you get a regulator on paper and a gap in practice,” he warned.
“Here’s the thing about a 600-page bill: the definitions are where the fights live. Whatever line Congress draws between a security and a digital commodity, lawyers like me will spend years testing its edges. Clarity in the title does not guarantee clarity in the courtroom,” Perry added.
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A path forward for ‘the next generation of finance’
In an interview with Yahoo Finance, Faryar Shirzad, chief policy officer at Coinbase, said that if the bill becomes law, it would pave the way forward for digital assets.
“If the bill passes, what you have is the U.S. finally doing what every other G20 country has done, which is to establish legislatively a regulatory framework about how crypto markets operate,” he said. “That’s a huge deal because the future of finance is being built on the blockchain. This law gives developers, innovators, traditional financial companies — all of us — the regulatory certainty we need to know how to build the next generation of finance and what rules apply.”
Shipkevich said cryptocurrency holders are unlikely to see any immediate effects if the Clarity Act becomes law.
“On the institutional side, I can see a short-term, immediate catalyst for new institutional crypto projects,” he said. “I imagine that we will see the institutional space pour more money into the crypto sphere since regulatory clarity is always good for investment.”
Perry believes that with passage, the biggest change the average crypto holder will see is who stands behind their exchange.
“The bill requires platforms to register and keep customer assets separate from their own. That is the exact failure that burned people at FTX. Your coins would sit in your account, not on the company’s balance sheet,” he said.
Yet, he cautions, “It will not make your bitcoin go up, and it will not make crypto safe. Volatility stays. Scams stay.”
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However, a registered platform would answer to a federal regulator with real authority to examine and enforce, rather than operating in a gray zone.
“Longer term, legal certainty is what brings in pension funds, banks, and asset managers. More institutional money generally means deeper markets and less wild price action,” he said.
