Galaxy Research Director: The Undervalued CLARITY Act Faces Setbacks

Author: Alex Thorn, Head of Galaxy Research

Compiled by: Jiahua, ChainCatcher

The U.S. Senate failed to advance the CLARITY Act on Tuesday, marking a significant setback for those who have been involved in cryptocurrency market structure legislation for years.

Although North Carolina Republican Senator Thom Tillis still retains the possibility of reconsidering the motion to terminate debate before the end of this Congress, there are also efforts behind the scenes to push for the bill's revival. However, we do not expect any substantial progress this year. The motion to terminate debate is a critical step in moving a bill from debate to a voting procedure.

We believe the CLARITY Act is an excellent bipartisan legislative achievement. It could have provided strong investor protection measures, helped curb illegal funding activities, promoted innovation, and solidified the global leading position of U.S. capital markets.

For years, many in Congress, regulatory agencies, and the industry have put in tremendous effort for this bill, and they deserve full recognition and thanks.

However, while we lament the potential demise of this outstanding legislative achievement that embodies the hard work of many, we must look forward.

The reality is that Bitcoin, cryptocurrencies, and blockchain do not rely on the CLARITY Act to continue developing in the short term, at least for now.

Blockchain is thriving, global applications are accelerating, and market regulators are taking action. At least during the remainder of this administration, the U.S. regulatory environment is not only favorable to the cryptocurrency industry but is overall supportive of its development.

These measures may be reversed by a future government that is unfriendly to the cryptocurrency industry, but at least they have provided breathing room for the industry to continue pushing for future legislation.

Regulators are Filling the Regulatory Gaps

The U.S. Securities and Exchange Commission (SEC) has thoroughly dismantled the anti-cryptocurrency regulatory framework established during the previous administration.

Many may not know that during Gary Gensler's tenure as chairman, the SEC was not only hostile to the cryptocurrency industry but also did not genuinely invest effort in addressing how existing rules apply to crypto assets. The previous SEC leadership claimed that nearly all crypto assets were securities but was unwilling to do the more difficult work of studying how to incorporate these assets into the securities law framework.

Today's SEC not only supports financial innovation but is also continuously explaining how crypto assets fit into the existing regulatory framework and where adjustments to the current framework are needed to accommodate this new technology.

Currently, the SEC has dozens of staff analyzing existing rules and regulations, soliciting feedback from various parties, and drafting regulatory guidance and proposed new rules. Compared to the previous chairman, who was keen on advancing regulation through litigation, refused to seriously respond to calls for clear rules, and pushed legitimate businesses overseas, Chairman Paul Atkins and commissioners Hester Peirce and Mark Uyeda are promoting a regulatory culture that respects professional judgment, encourages innovation, and values investor protection. The difference between the two is very clear.

The situation at the Commodity Futures Trading Commission (CFTC) is similar. Under Chairman Mike Selig's leadership, the CFTC is collaborating with the SEC more closely than ever before, gradually ending the jurisdictional turf wars between the two regulatory agencies over crypto assets.

Chairman Selig has advanced the formulation of rules related to prediction markets, expanded the use of stablecoins as collateral for derivatives trading, approved the first Bitcoin perpetual futures contracts in the U.S., and clarified how the CFTC will handle similar approvals in the future. Bitcoin perpetual futures are derivative contracts without a fixed expiration date.

The SEC and CFTC are jointly providing clearer regulatory guidance on the positioning and trading methods for different types of digital assets. These are not special favors from regulators to the crypto industry but rather the two commissions diligently completing a challenging task: explaining how securities law and commodity law apply to new technologies and adjusting the regulatory framework when necessary.

Other federal agencies have also taken action.

In March 2025, the Office of the Comptroller of the Currency (OCC) rescinded its previous "non-objection" mechanism. Under this mechanism, national banks had to obtain a "non-objection" opinion from regulators before engaging with crypto assets or using blockchain.

The Federal Deposit Insurance Corporation (FDIC) also eliminated similar requirements for non-Federal Reserve member banks. These two actions significantly dismantled the regulatory mechanisms supporting "Operation Chokepoint 2.0," which typically refers to practices that restrict cryptocurrency companies from obtaining accounts, payment, and financial services through the banking system.

Subsequently, the OCC began issuing conditionally granted national trust bank charters to crypto companies, and the Federal Reserve terminated its "Novel Activities Supervisory Program," which previously imposed "enhanced supervision" on companies involved in crypto business.

In April 2025, the Department of Justice issued a memorandum titled "Ending Regulation by Enforcement"; the Department of Labor rescinded its harsh guidance on crypto assets and 401(k) retirement savings plans from 2022; and the IRS provided safe harbor arrangements for pledge activities in grantor trust structures used by commodity ETFs. A grantor trust is a trust structure that, for tax purposes, treats the related income as directly held by the grantor.

Compared to the past few decades, federal agencies are now more proactive in promoting responsible innovation and are more willing to invest effort. Blockchain is seen as a powerful technology that can empower both individuals and institutions.

According to Galaxy Research, all of the top 30 banks globally are developing digital asset products, and two-thirds of the top 30 asset management companies are also engaged in related businesses. Last year, the number of announcements regarding digital asset products from the top 150 traditional financial institutions set a record, and it is expected to exceed this record in 2026.

Legislation Remains Irreplaceable; the Industry Needs to Utilize the Window of Opportunity

We must acknowledge that as the chapter of the CLARITY Act may be closing, an era is also coming to an end.

SEC Commissioner Hester Peirce will leave office in November. Tyler Williams left the Treasury Department in July. Patrick Witt plans to leave the White House at the end of September to undergo officer training.

Thom Tillis (North Carolina Republican) and Cynthia Lummis (Wyoming Republican), who are members of the Senate Banking Committee and have played key roles in digital asset legislation, will also retire from Congress. Many key policy staff in Congress may also leave for other jobs.

The existing legislative texts, research findings, and policy foundations remain, but when relevant topics are discussed again in the future, the balance of power, market environment, and participants may have changed.

The CLARITY Act was never meant to be the endpoint of this work; it has always been just the starting point. We may have lost this vote, but we have not lost this debate.

However, there are some things regulators cannot do: the CFTC cannot independently obtain jurisdiction over the spot market; any interpretive documents cannot automatically exclude the applicability of the regulatory systems of the 50 states; and any regulatory relief protecting non-custodial developers, who do not hold assets for users, would only be a temporary measure if not written into federal law and could be revoked at any time.

Regulators can only interpret the law; only Congress can amend the law.

However, the next two years should not just be a time of waiting. We have the opportunity to accumulate practical evidence to demonstrate that the spot market can be effectively monitored, tokenized securities can be safely cleared, settled, and traded around the clock, and stablecoins can transfer funds on a large scale quickly and at low cost without triggering systemic issues.

In this way, when Congress eventually revisits the discussion on cryptocurrency market structure, the scale of industry applications will be larger, and the practical basis supporting relevant legislation will be more substantial.

For the past decade, the industry has been calling for clear rules but has received litigation instead. Now, the situation has flipped, which is actually a much better scenario: the government is willing to genuinely invest effort in advancing rulemaking, while the industry has a limited window of opportunity to prove that this work is worth continuing.