The CLARITY Act, a bill considered pivotal for the U.S. digital asset market structure, ultimately failed to clear the Senate hurdle.
Despite Republicans’ last-minute addition of an ethics clause aimed at limiting the President’s family’s involvement in digital asset businesses, they couldn’t secure Democratic support. The bill’s failure has significantly reduced the likelihood of legislation this year, causing digital asset-related stocks to plummet and sparking industry-wide disappointment.
However, this setback doesn’t signal a halt in U.S. efforts to regulate digital assets. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) plan to leverage their existing authority to reduce regulatory uncertainty around digital assets, independent of Congressional action.
49 For, 50 Against: Rejected… Chances of Legislation This Year Plummet
On Tuesday, Reuters and other media outlets reported that the Senate’s cloture vote on the CLARITY Act failed with 49 votes in favor and 50 against, far short of the 60 votes needed to advance the bill.
Initially, Republican Senator Thom Tillis, who had voted in favor, switched to oppose, leaving the possibility of a re-vote open. This resulted in the final tally of 49 for and 50 against.
Cloture is a procedure to end debate and move to a full Senate vote. Even if the CLARITY Act had passed this stage, it would have faced further hurdles, including a full Senate vote, reconciliation with the House version, and the President’s signature. However, the bill couldn’t even clear this initial obstacle.
While a re-vote remains possible, the chances of passing legislation this year have significantly diminished. With the upcoming November midterms, the current 119th Congress has limited time left, and key issues between both parties remain unresolved.
Ethics Clause Added, But Stronger Measures Demanded… Parties Fail to Bridge Differences
Despite the bill’s aim to establish a regulatory framework for the digital asset market and clarify SEC and CFTC jurisdictions, Republicans and Democrats have disagreed over details for over a year. The ethics clause, aimed at limiting the President’s family’s digital asset business, became the major sticking point at the eleventh hour.
Republican lawmakers proposed an amended version including the ethics clause before the cloture vote. This amendment would restrict federal elected officials, their spouses, and federal judges from issuing digital assets and require those with significant financial interests in digital assets to divest or place them in a blind trust.
However, this amendment failed to sway key Democratic lawmakers. Senator Mark Warner, a Democrat involved in negotiations, reportedly stated that the Republicans’ ethics provision fell far short of what was necessary.
Democrats countered with their own proposal before the vote. According to AP, they demanded a stronger ethics clause that would require the President to divest digital assets exceeding a certain threshold.
Following the counter-offer, Republican Senator Cynthia Lummis, a pro-digital asset legislator who had championed the CLARITY Act, stated that no further concessions were possible.
Consequently, no Democratic lawmakers voted in favor during the cloture vote, as both parties failed to reconcile their differences.
Will the CLARITY Act Be Abandoned? SEC, CFTC Set to Develop Their Own Crypto Rules
While a re-vote isn’t entirely off the table, the recent rejection has significantly lowered the chances of passing the CLARITY Act this year. On the prediction market platform Polymarket, the likelihood of the Act passing this year has plummeted to 16%.
Time is running short. This vote wasn’t the final passage vote but a procedure to advance the bill to amendment submission and final review. With only 36 legislative days left in the Senate before the midterms, the CLARITY Act has virtually no time left after failing even to clear the cloture vote.
If the CLARITY Act doesn’t reach the President’s desk by year-end, it will be discarded with the conclusion of the 119th Congress on January 3, 2027. Unresolved bills don’t automatically carry over to the next Congress.
Therefore, the 120th Congress, beginning in 2027, would need to reintroduce the bill under a new number. The legislative processes in both chambers would have to start from scratch. If Democrats regain control of either chamber, it may become even more challenging to pursue the current Republican-led version of the CLARITY Act.
In response, U.S. regulators plan to push forward with their own digital asset regulations.
SEC Chair Paul S. Atkins and CFTC Chair Michael Selig have stated that if Congress fails to act, they will use their agencies’ authority to create their own regulations.
Chair Atkins recently outlined the three pillars of SEC’s regulatory framework: rules for digital asset issuance, reforms for transfer agents, and the establishment of custodial regulations.
Additionally, Chair Selig mentioned last month that he’s considering allowing unregistered digital asset exchanges to be classified as a type of derivatives exchange.
Ultimately, while the CLARITY Act’s failure makes it unlikely that legal uncertainty in the U.S. digital asset market will be resolved short-term, regulatory efforts led by the SEC and CFTC are expected to continue.
