Last week, in the background of the Senate’s desperate scramble to get through the backlog of agenda items that have been piling up all summer, a dramatic showdown of money and power took place over the cryptocurrency industry’s top legislative priority, the CLARITY Act, which would sort digital assets into different categories and split regulation—though regulation is a strong word for the proposed framework in the bill—between the Securities and Exchange Commission (SEC) and the smaller and more industry-friendly Commodity Futures Trading Commission (CFTC).
The crypto industry was hoping the threat posed by their $136 million war chest would scare enough Democrats to win the 60 votes necessary to overcome a filibuster before the August recess began, and the future of the legislation would become all that much more uncertain ahead of the November midterms.
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But amidst outrage over the $1.4 billion crypto windfall (and counting) that President Trump has taken in during his second term, along with concerns over insufficient safeguards against illicit finance and a stablecoin yield loophole threatening bank deposits, even the most historically reliable allies for the industry within the Senate Democratic caucus—who still support the CLARITY Act’s broader vision—were steadfast in their opposition to the bill in its current form. Despite the industry’s desperation for a vote last week, Democrats managed to delay it until after the recess, and duck for now the scorched-earth revenge campaign from the industry’s political spending arm that might have resulted from voting no.
Though the CLARITY Act isn’t dead yet, the delay is a bad sign for the crypto industry’s legislative agenda, and for their tight relationship with a small, but up to this point sufficient, faction of the Democratic Party. There are even indications that support for crypto is starting to be a hindrance for Democrats in primaries, even with all the campaign cash it brings along.
“The tides have shifted,” says Mark Hays, senior policy director for cryptocurrency and fintech with Americans for Financial Reform. In a midterm environment favorable to Democrats and a base increasingly skeptical of outside spending and even crypto itself, the industry’s grip over the Democratic lawmakers they bought during the last election cycle is slowly beginning to loosen.
The backlash over crypto-centered corruption from the Trump administration has been the biggest roadblock for the CLARITY Act this summer.
The crypto industry spent more than $130 million in congressional races in 2024 to buy bipartisan support for the CLARITY Act and its compatriot, the GENIUS Act, which opened the doors for lightly regulated stablecoin issuance in the United States. Around $40 million of that pile went to help Sen. Bernie Moreno (R-OH), now one of their top allies in the Senate, oust three-term Democratic incumbent Sherrod Brown, who was outspoken against the industry before his defeat.
The 2024 elections were an incredible victory for the industry. Not only was Donald Trump, the self-proclaimed “crypto president,” headed back to the White House, but the incoming Congress had a Republican majority, loyal to both their president and their funders, and a large enough group of Democrats who were either affirmatively pro-crypto or scared enough by the cautionary tale in Ohio to vote in line with the industry’s wishes.
CLARITY passed the House with 78 Democratic votes last July. The same day, the GENIUS Act received 18 Democratic votes in the Senate and was sent to the president’s desk to be signed into law. The future was looking bright for the digital asset world. Together, the two bills could bring the long-sought veneer of legitimacy and regulatory relief the industry needed to be a competitive player in the financial system.
But other monied interests, namely the banking lobby fighting the stablecoin yield loophole, had enough sway to slow progress down in the Senate, combined with the illicit finance issues raised by law enforcement groups.
The backlash over crypto-centered corruption from the Trump administration has been the biggest roadblock for the CLARITY Act this summer. Senate Democrats are demanding an ethics provision in the CLARITY Act to limit conflict-of-interest concerns with top government officials, including the president and members of Congress. Trump won’t agree to any ethics provision with real power to prevent him from enriching himself on the back of the crypto industry.
After Republicans released a draft with a laughably weak ethics provision signed off by the president, seven of the most pro-crypto Democrats in the Senate released a statement in opposition. “Key provisions including those addressing ethics for elected officials, consumer protection, illicit finance, conflicts of interest and market integrity must be strengthened,” read the statement from some of crypto’s biggest proponents in office, including Sens. Angela Alsobrooks (D-MD) and Ruben Gallego (D-AZ).
In the weeks since, opposition to the current language among pro-crypto Democrats has only hardened. Republicans tried to address Democratic concerns with new ethics language, but the White House’s failure to respond to it was a major reason for the delay in the vote.
Trump’s crypto ventures are particularly politically salient for the Democratic Party right now, as it homes in on Trump and Republican corruption as a central message in the upcoming midterm elections.
“There are more [Democrats] saying, ‘We don’t have to just accept the industry narrative here. We can talk about the very good reasons why these practices are anathema to politicians who are standing up to corruption.,’” Hays told the Prospect.
THE DELAY COMES AT A PARTICULARLY BAD TIME for the industry, whose struggles to acquire a mainstream customer base have led them to rely on financial influence over lawmakers as a key growth strategy. During an election cycle where outrage at outside spending from corporate interests and groups like AIPAC is dominating some of the most important races, Trump’s crypto corruption fits into a broader outrage growing within the electorate around big money’s hold over politics.
Senate Democrats circulated polling last week that found 84 percent of Democratic primary voters had an unfavorable view of crypto-backed candidates, and 76 percent had an unfavorable opinion of the industry itself. That puts crypto’s favorability below that of big banks, oil companies, or even data centers. So moderate Democrats who are trying to use the corruption message as a cudgel against Republicans may need to fend off accusations from the left about the same behavior.
Indeed, in the critical Democratic primary to replace Sen. Tina Smith in Minnesota, Lt. Gov. Peggy Flanagan has used Rep. Angie Craig’s support for crypto against her. “Angie Craig voted to let Trump make billions selling crypto coins. I won’t,” Flanagan says in a direct-to-camera ad. Craig, the ranking Democrat on the House Agriculture Committee, voted for the GENIUS and CLARITY Acts, and boasts a top rating from Stand With Crypto, an industry-based watchdog, and as Flanagan pointed out in a statement to the Prospect, “she missed the first day of the Minnesota State Fair to headline a cryptocurrency conference in Jackson Hole, Wyoming, where she opened for Eric Trump.”
