The Long, Winding, and Rocky Road Toward Crypto Clarity

Introduction

At its inception, the Senate version of the Clarity Act was a relatively straightforward piece of legislation, though not particularly simplified, weighing in at around 275 pages. After about a year of tortured negotiations, including significant last-minute amendments, a 635-page bill emerged that is far broader, far more burdensome, and far more complex than was originally envisioned. Unfortunately, from a public policy standpoint, the latest version of the Clarity Act has failed to advance to the Senate floor, thus dashing any hope for a comprehensive crypto market structure bill to advance in the United States for some time—per Senator Lummis (R-WY), probably until at least 2030. That said, the last-minute efforts to reach a compromise were instructive of where the sensitive issues are and will remain as the digital asset and blockchain industry moves forward.

Key Highlights

• No one answer for the Act's failure. The Clarity Act fell short for a combination of reasons, all of which have policy implications, which must eventually be resolved.
• Regulators are filling the gap. Despite the absence of legislation, financial services regulators are stepping into the gap in order to fill out a rulebook for digital assets and blockchain in the context of financial services.
• The absence of legislation will likely have unintended effects. The failure of the Clarity Act may have unintended and potentially adverse circumstances for smaller players in financial services.
• The absence of legislation will not hinder continued forward movement. Crypto as a whole is moving forward at a rapid pace with new product developments and compliance improvements.