Brookings Fellow Warns Clarity Act Could Leave Crypto Regulation Toothless

The CLARITY Act is intended to establish a US market structure for digital assets and clarify how oversight is divided between the Securities and Exchange Commission and the Commodity Futures Trading Commission. Its fate matters to token classification, trading-platform supervision and compliance obligations across the crypto industry. Supporters view legislation as a more durable way to end years of uncertainty over which agency governs different parts of the market.

With the bill’s prospects of passage fading, the SEC and CFTC are moving to develop crypto rules under their existing authorities. Industry experts caution that agency regulations would offer less lasting certainty than an act of Congress because a future administration or reconstituted commission could reverse them, while courts could also narrow or invalidate the measures. The emerging CLARITY-free approach may provide near-term guidance but leave companies exposed to another shift in US policy.

The Digital Asset Market Clarity Act of 2025, or H.R. 3633, is intended to divide oversight of digital assets between the Securities and Exchange Commission and the Commodity Futures Trading Commission, giving the derivatives regulator a broader role in spot crypto markets. The House passed the bill 294-134 on July 17, 2025, but Senate talks have bogged down over ethics restrictions, stablecoin rewards and protections for decentralized finance. Legislation would provide a more durable framework than agency rules, which could face court challenges or reversal by future administrations.

CFTC Chairman Michael S. Selig said on Aug. 20, 2026, that he had directed staff to explore crypto market-structure rules and would order formal proposals if Congress failed to advance CLARITY. The framework could address registered exchanges, leveraged or margined trading on some unregistered platforms, and legal pathways for on-chain financial protocols. Selig said legislation remained the surest route, but the agency would use its existing statutory authority if necessary, as the Senate targets a procedural vote in mid-September after returning from its August recess.

The Digital Asset Market Clarity Act is intended to establish a federal market structure for a US cryptocurrency industry valued at more than $2 trillion, bringing digital assets firmly within the regulated financial system. The bill remains stalled in the Senate, where lawmakers are divided over ethics restrictions on senior government officials’ crypto activity. Banks also oppose stablecoin rewards that resemble interest on deposits, warning they could pull money from the banking system.

CoinDesk reported on Aug. 4 that Crypto Watchdog, formed only weeks earlier, was saturating Washington television and social media with ads linking digital assets to terrorists, drug cartels and scams targeting seniors. Executive Director Chapin Fay declined to identify the group’s funders, despite portraying its mission as promoting transparency. A June survey of 1,000 voters commissioned by the group found 65% had a high level of distrust toward crypto. Senators face an Aug. 7 recess deadline and need at least 60 votes to advance the bill.

The Digital Asset Market Clarity Act would divide oversight of digital assets between the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission, while establishing federal rules for token issuers and trading venues. The House passed the measure 294-134 on July 17, 2025. Its fate matters because legislation would provide a more durable framework for the industry than agency interpretations that can shift between administrations.

Bernstein warned on Aug. 3, 2026, that failure to enact the Clarity Act this year could trigger another leg lower in crypto valuations as the market loses a key policy catalyst. Prediction-market odds had fallen to 31%, with the Senate approaching its recess around Aug. 7. The broker said a legislative defeat would nevertheless push the SEC and CFTC to accelerate rulemaking under Project Crypto, leaving regulators, rather than Congress, to drive the next phase of U.S. crypto oversight.

The Digital Asset Market Clarity Act, or CLARITY Act, is intended to replace the fragmented U.S. crypto rulebook with a federal market-structure regime. It would give the Commodity Futures Trading Commission a central role over digital commodities and trading intermediaries while defining the Securities and Exchange Commission’s authority. The House passed H.R. 3633 by 294-134 on July 17, 2025, and the Senate Banking Committee advanced it 15-9 on May 14, 2026, putting state-versus-federal enforcement at the center of the debate.

New York Attorney General Letitia James submitted written testimony on July 27, 2026, to the Senate Homeland Security and Governmental Affairs Committee’s Permanent Subcommittee on Investigations, warning that the measure would pre-empt state regulation and dilute local fraud enforcement. She said crypto-scam complaints to her office had tripled over three years and reported losses approached $500 million over five years. James urged Congress to preserve state money-transmission, commodities and securities laws and require platforms to meet anti-money-laundering, know-your-customer and cybersecurity standards, monitor suspicious activity and bear financial liability when safeguards fail.

U.S. cryptocurrency oversight has long remained murky, with the Commodity Futures Trading Commission and Securities and Exchange Commission vying for the lead role. The CLARITY Act before Congress seeks to establish clear market-structure rules and resolve enforcement disputes once and for all. Its passage will directly affect whether the United States retains influence over the global digital-asset financial system and prevents domestic companies from moving abroad because of regulatory uncertainty.

CFTC Acting Chairman Selig recently warned that regulators would write their own rules to fill the legal void if Congress fails to pass the CLARITY Act before its August recess this year. He said such an outcome would cost the United States its authority to set cryptocurrency rules and force U.S. companies to operate under overseas frameworks such as the European Union’s Markets in Crypto-Assets Regulation, or MiCA.

The Clarity Act under consideration in the U.S. Congress aims to divide regulatory responsibilities for digital assets and establish clear rules for trading platforms, token issuers and institutional investors. Jefferies says enactment could accelerate institutional adoption of cryptocurrencies, while delays would allow regulatory uncertainty to continue driving cryptocurrency prices and blockchain-related stocks.

As of July 20, 2026, the Clarity Act had passed review by the U.S. Senate Banking Committee but still faced a compressed Senate calendar and political concerns. Jefferies warned that the outcome of the legislative process could amplify market volatility. The related reports disclosed no specific investment or transaction amounts and provided no date for a Senate vote.

The US Congress is considering the CLARITY Act, which seeks to clarify regulatory responsibilities for digital assets and trading platforms and reduce legal uncertainty for crypto companies. Senator Cynthia Lummis says clear rules are critical to bringing businesses back to the United States and preserving the country’s leadership in financial technology.

Lummis warned that this week could be the United States’ last critical opportunity to advance the CLARITY Act before 2030. She said China could otherwise write the rules for a new financial era. Negotiations have continued since the Senate returned, but Democrats and Republicans remain divided over provisions covering lawmakers’ ethics and safeguards against bad actors. A vote on crypto market structure could take place as early as August.

US crypto assets have long been overseen separately by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), with no clear line determining whether a token is a security or a commodity. The Digital Asset Market Clarity Act aims to delineate the agencies’ responsibilities, reduce regulatory uncertainty for the industry and cement US leadership in setting global rules for crypto finance.

US Treasury Secretary Scott Bessent recently urged Congress in an opinion piece to pass the bill this summer. The House approved it by a 294–134 vote on July 17, 2025, but it still awaits Senate action. The White House had pushed to complete the legislation by July 4, while prediction markets currently put its chance of passage this year at about 70%. Bessent also said the Strategic Bitcoin Reserve is moving forward cautiously.

The CLARITY Act aims to clarify how oversight of crypto assets is divided between the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission. The dispute centers on whether the Blockchain Regulatory Certainty Act, or BRCA, should exempt DeFi developers who do not control user assets, determining whether software developers must assume the responsibilities of financial intermediaries.

As of July 19, 2026, bipartisan Senate negotiations had broken down over an amendment providing a BRCA enforcement exemption, despite claims that lawmakers had reached 99% agreement. The legislative window is only about eight weeks. The White House will hold talks with law enforcement groups, but no compromise has emerged on the key provision. The bill could move to separate votes by the two parties, making it unlikely to clear the Senate threshold.