What's next for the Clarity Act as September brings a tough road ahead

The outlook for landmark cryptocurrency legislation is growing increasingly bleak, following Senate Majority Leader John Thune's move to punt the initial vote to next month.

Early Saturday morning, Thune filed for a cloture vote scheduled for Sept. 15, when the Senate is back from its month-long recess.

Some in the crypto industry were disappointed by the delay, as there had been an expectation that the Senate could at least hold an initial vote before lawmakers returned to their respective states, said Talia Davis, vice president of government relations at the DeFi Education Fund. That leaves just a few weeks next month to have the procedural vote, a vote to potentially pass the bill in the Senate before sending it to the House.

That leaves lawmakers with only a few weeks in September to clear the procedural hurdle and potentially pass the bill in the Senate before sending it to the House.

"At least there is acknowledgement that this will happen, or at least some hope that it will happen in September. I think some people in the industry are still very skeptical if that will actually follow through," Davis told The Block, adding that the bill is still a priority for the Senate.

On Monday, TD Cowen’s Washington Research Group, led by managing director Jaret Seiberg, put the odds of the bill, called the Clarity Act, becoming law in the next few months at a mere 25%.

"As we have written for a year, the best opportunity to pass Clarity was before the summer break," Seiberg said. "The bill is not dead, but the path forward is harder."

Clarity's obstacles

Over the past year, the Senate has been trudging through efforts to pass the Clarity Act. The bill would comprehensively regulate the crypto industry at the federal level for the first time and give the Commodity Futures Trading Commission much broader jurisdiction over those assets.

But the bill has encountered one obstacle after another.

Earlier in the year, how to regulate stablecoin rewards, which allow users to earn interest on deposited funds, came into the spotlight. The debate quickly evolved into a broader clash between the crypto industry and the banking sector. Sens. Angela Alsobrooks, D-Md., and Thom Tillis, R-N.C., later finalized a compromise to end the months-long dispute that says platforms cannot pay rewards just for holding the asset, but said rewards could be given on transactions and payments.

But there is still chatter in Washington about reopening the provision, and banks are continuing to push for changes.

In a note on Monday focused on a stablecoin law passed last year, American Bankers Association innovation policy expert Kaye Lynch-Sparks highlighted concerns that the Clarity Act does not go far enough and that ABA is calling on lawmakers to tighten language.

Blockchain Association CEO Summer Mersinger said the reopening of the stablecoin reward part of the Clarity Act, Section 404, was discouraging.

"I think the conversation will continue, but you know whether or not there's a reopening of Section 404 I think is not a foregone conclusion," she said in an interview with The Block.

Ethics, of course, has become the latest big hurdle. Over the past year, concerns over President Donald Trump's expanding crypto holdings and business interests, which have grown to an income of millions of dollars, have loomed over negotiations.

Trump is now weighing the latest ethics proposal from Sens. Ruben Gallego (D-Ariz.) and Thom Tillis (R-N.C.), which includes language that would allow state attorneys general to enforce a provision that would prohibit public officials and their spouses from issuing or sponsoring digital assets.

Ethics unlocks other issues that need to be addressed, Mersinger said.

"If ethics works out, there's even more pressure to get the other issues to a good place," Mersinger said.

'Things aren't looking good'

Todd Phillips, director of financial services consulting firm the Klaros Group, said in short that "things aren't looking good for Clarity."

"There are so many issues left to settle, and the senators aren't in DC for negotiations," Phillips said in a message. "Staff can talk, but there are some things that need to be negotiated between senators and between senators and the White House."

Concerns over illicit finance have also remained a persistent sticking point. Some lawmakers contend that the Clarity Act does not give law enforcement and consumer protection agencies adequate tools to combat illicit activity, a claim the crypto industry strongly rejects.

Sen. Catherine Cortez Masto (D-Nev.) has frequently brought up concerns that the Clarity Act does not go far enough to protect law enforcement and consumers. In the end, Cortez Masto won't support the bill, a crypto industry source said, adding that they are focused on ensuring other lawmakers don't follow suit.

"My outreach that I've been doing is not trying to help her, I believe that she's going to stay at a no, it's trying to understand the concerns of other senators and how to make sure that their concerns are addressed where they don't get roped into her whip account, if she decides to whip against the bill," they said.

Scheduling

The Senate returns Sept. 14; both the House and Senate are in Washington until Oct. 2 and are out all of October, which could pose a challenge. The Senate still has to move funding and defense bills. That compressed calendar could make it difficult to advance the Clarity Act, particularly as lawmakers turn their attention toward the November elections.

"The Senate operates very slowly," the crypto industry source said. "I do think that the House and Senate being gone for the entirety of October does add another challenging factor to this process."

The House passed its version of the Clarity Act last year, but it is different from the Senate's current version. For example, it doesn't include Section 404 on the treatment of stablecoin rewards.

The House could decide not to accept the Senate's version, the Blockchain Association's Mersinger said. Last year, when the House took up the Senate's version of stablecoin law called the GENIUS Act, procedural votes were thrown into disarray following concerns that it didn't ban central bank digital currencies.

"There was no discussion of yield in the Clarity Act on the House side," she said. Still, progress in the Senate could help move the legislation forward.

"We will have that momentum coming out of the Senate, and really that will encourage the House to move on it," Mersinger added.

Regulatory front

Meanwhile, the Securities and Exchange Commission has kicked into gear this week and on Monday scheduled a meeting for Friday to "consider whether to issue a release proposing new rules to create a tailored offering regime for certain investment contracts involving crypto assets."

The SEC has already begun laying the groundwork for crypto rulemaking before the end of the year. This includes plans to change its rules on how much liquid capital brokers have to maintain, recordkeeping, and exchange rules when it comes to digital assets.

Earlier this year, SEC Chair Paul Atkins laid out his plans for a "token taxonomy" that delineates between what cryptocurrencies would be securities. The SEC and CFTC have also said they've joined forces to modernize digital asset regulation called "Project Crypto."

Both SEC Chair Atkins and CFTC Chair Michael Selig have emphasized that agency action can provide regulatory clarity in the near term, while legislation like the Clarity Act would establish a more durable statutory framework. Both have also publicly backed congressional efforts to pass comprehensive crypto market-structure legislation.

The SEC and CFTC can provide some exemptive relief and maybe some rulemaking, but it's not permanent, Mersinger said.

"It's not enough for these developers and innovators to absolutely just bank on for the long term," Mersinger said.

Ready, set, go in September?

The big question has also been whether no vote in August means that the Clarity Act is dead. One crypto industry source said they didn't believe that was the case.

Regarding the cloture vote, Mersinger said she did not view a delayed vote to next month as a bad thing.

"They were making a lot of progress those last couple of weeks, and I think that will continue," she said. "We could very well be in a spot by the time this vote comes up where everyone's comfortable and ready to support it."

Peter Phelan, vice president of strategic advisory at Elliptic, urged patience.

"Clarity stalled, but it’s not back to square one," Phelan said. "Compliance teams just have to be patient and continue to monitor developments as the negotiations proceed."

In the absence of legislation, the SEC and CFTC have been working hard, said Solana Policy Institute President Kristin Smith, signaling optimism that Clarity could still get done.

"We remain confident there is a real window to finish the Clarity Act when Congress returns in September, and we will keep working with sponsors on both sides of the aisle to get it done,” Smith said.

The White House's top crypto adviser, Patrick Witt, too signalled that he wasn't throwing in the towel yet.

"The administration remains fully committed to getting the Clarity Act across the finish line in September," Witt said on Monday in a post on X. "Durable rules, the kind only legislation can provide, are needed now more than ever."

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