Clarity Act: What it means for your crypto holdings

The Clarity Act, legislation that seeks to better define and regulate digital assets, faces a key test in the U.S. Senate on Tuesday. Senators will hold a procedural vote this afternoon to determine if the Digital Asset Market Clarity Act will undergo further deliberation.

The measure needs 60 votes to advance, requiring "yes" votes from at least seven Democrats 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 includes more than 100 revisions Democrats requested, including stricter ethics guidelines.

The bill is over 600 pages long and would mark the first federal regulation of the U.S. crypto sector. A version of the bill cleared the House last year, but it has run into resistance in the Senate.

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."