The probability of passing within the year is only 50%. Can the CLARITY Bill succeed before the midterm elections?

Original Author / Galaxy

Compiled by / Odaily Planet Daily Golem (@web3_golem)

With the agenda of the 119th Congress rapidly approaching, cryptocurrency market structure legislation is nearing its final stages.

The CLARITY Act passed the House in July 2025 with strong bipartisan support (294 votes in favor, 134 against) and has been the focus of intensive Senate negotiations since January this year. The Senate Committee on Banking, Housing, and Urban Affairs is expected to announce a markup hearing this week, likely during the last week of April.

Committee Chairman Tim Scott (R) stated that three key issues remain unresolved: stablecoin yield provisions, DeFi provisions, and securing the votes of all Republican members of the committee. Additionally, several other outstanding issues could complicate the legislative path forward, including the treatment of non-custodial software developers in the Blockchain Regulatory Certainty Act, ethics provisions related to crypto holdings by government officials, and issues concerning the SEC.

Following passage through the Senate Banking Committee, the bill still needs 60 votes in the full Senate, reconciliation with the Agriculture Committee's version and the House-passed bill, and finally, the President's signature. Each step takes time, but the legislative calendar is shrinking rapidly: the CLARITY Act must compete for limited Senate floor time against debates on Iran military authorization, the stalled DHS appropriations bill, and a backlog of nominations.

On Monday, Punchbowl News reported that Senator Thom Tillis (R-NC), a key negotiator on the Senate Banking Committee, called for delaying the committee's markup until May. If the markup is delayed until after mid-May, the bill's chances of passing in 2026 diminish significantly. Senator Cynthia Lummis (R-WY) warned that failure this year could delay market structure legislation until 2030 or later.

Galaxy believes the probability of the CLARITY Act becoming law in 2026 is roughly 50%, potentially even lower. This uncertainty stems not from any single issue, but from the multitude of unresolved questions that must be addressed sequentially under severe time constraints.

Treasury Secretary Scott Bessent (left) has called for a markup of the CLARITY Act. Senate Banking Committee Chairman Tim Scott says three big issues remain.

CLARITY Act Progress Review

The Digital Asset Market Structure Transparency Act of 2025 (CLARITY Act) passed the U.S. House of Representatives on July 17, 2025, with a vote of 294 in favor and 134 against. All 216 voting Republican members voted in favor, with none opposed and 4 abstaining. On the Democratic side, 78 members crossed party lines to vote in favor, while 134 voted against.

The bill was introduced on May 29, 2025, by House Financial Services Committee Chairman French Hill (R-AR) and passed a joint markup hearing of the Financial Services Committee (47-6) and the Agriculture Committee (32-19) on June 10.

The overwhelming House vote reflected broad consensus on the urgent need for a federal digital asset regulatory framework: the bill clearly delineates jurisdictional boundaries between the SEC and the CFTC, establishes a "sufficiently decentralized blockchain test" for determining whether certain crypto assets are securities, creates a path for token networks to be treated as non-securities once sufficiently decentralized, and, for the first time, subjects digital commodity intermediaries to federal registration and Anti-Money Laundering (AML) obligations. The Senate Banking Committee released its draft in July, and the bill was introduced in the Senate on September 18, where it was referred to the Banking Committee.

In the Senate, work on the CLARITY Act has progressed on parallel tracks. The Agriculture Committee released a discussion draft in November and marked up the Digital Commodity Intermediary Act, focusing on the CFTC's regulatory authority over digital commodity markets (including spot markets), on January 29.

Furthermore, on January 12, the Senate Banking Committee, chaired by Tim Scott with Elizabeth Warren as Ranking Member, released a 278-page Manager's Amendment (ANM) as the base negotiating text for the committee's work. This text goes far beyond the House-passed bill, encompassing nine titles covering securities innovation, illicit finance, decentralized finance, banking, software developer protections (the Blockchain Regulatory Certainty Act, or BRCA), customer property protection in bankruptcy, and other matters.

The bill was initially expected to be brought to the Senate floor for a vote in mid-January but was delayed due to disagreements over stablecoin yield restrictions. A second attempt at a vote was also canceled. Before the CLARITY Act can go to the Senate floor, the Banking Committee and Agriculture Committee versions must be reconciled. The merged bill then needs to be reconciled with the House version, all before being sent to the President for signature.

Since January, the primary obstacle to the bill's progress has been the dispute between the banking industry and crypto companies over stablecoin yields. (The GENIUS Act, signed into law last year, prohibits stablecoin issuers from sharing earnings directly with holders but allows exchanges to pay rewards to users holding stablecoins on their platforms; banks want to prohibit such incentives.) On March 20, Senators Thom Tillis (R-NC) and Angela Alsobrooks (D-MD) announced a tentative agreement brokered by the White House. The agreement would ban yields based solely on holding stablecoins but permit well-defined rewards tied to activities like payments, transfers, or platform usage.

Since David Sacks' departure in March, Patrick Witt, Executive Director of the President's Council of Advisors on Digital Assets, has been the White House's primary point person on crypto legislation. He described the compromise as durable and confirmed that several previously thorny issues were resolved behind the scenes. Crypto industry representatives reviewed the text on March 23 and found its language overly restrictive; Coinbase initially opposed it but changed its position on April 10 after Treasury Secretary Scott Bessent publicly called for revisions and the exchange's CEO, Brian Armstrong, expressed support.

On April 8, the White House Council of Economic Advisers (CEA) released a 21-page analysis indicating that a full ban on stablecoin yields would only increase bank lending by $2.1 billion (0.02% of total outstanding loans) while imposing $800 million in consumer costs. This report undermined the banking sector's core argument that unrestricted stablecoin yields pose a structural threat to deposits. As of press time, Chairman Scott has not announced a markup date.

He told Fox Business on April 14 that three issues remain unresolved: stablecoin yield provisions, DeFi provisions, and securing the votes of all Republican committee members. Senator Tillis, tasked with releasing the revised yield text, said last week it was unlikely to be released this week and called on Monday for the markup to be postponed until May. A markup cannot be scheduled until the text is released and the committee's mandatory 48-hour notice period expires.

U.S. Senator Thom Tillis is a key negotiator on the Senate Banking Committee.

The Importance of Passing the CLARITY Act Before the Midterm Elections

The CLARITY Act provides a vital and durable legislative foundation for the digital asset industry: classifying different types of digital assets and their regulatory treatment, clarifying market regulator jurisdiction, protecting non-custodial developers, and granting the Treasury new powers to combat illicit finance, among other things.

The bill provides the necessary legal and regulatory certainty to continue the integration of crypto markets with traditional capital markets, modernizing U.S. capital markets and, for the first time, offering clear, substantive safeguards, disclosures, and investor protections. It resolves many outstanding issues that have previously prevented institutional capital and infrastructure from entering the market or drove them offshore.

Overall, the CLARITY Act is a robust piece of legislation, both technically and politically.

Given the balance of power in the House and Senate (Republicans hold a slim majority), Galaxy believes it is critical that the CLARITY Act is passed and signed into law before the November midterm elections. While the bill enjoys significant Democratic support (78 House Democrats voted for it in 2025), a potential shift in the balance of power in the 120th Congress (convening January 2027) would drastically reduce the likelihood of this legislation passing after November 2026.

If Democrats gain majorities in either chamber, it means new committee chairs, new agenda priorities, and potentially a very different approach to crypto legislation. Specifically, the current version of the CLARITY Act is highly unlikely to emerge from a Senate Banking Committee chaired by either of its current senior Democratic members, Elizabeth Warren or Sherrod Brown.

Sherrod Brown, who chaired the Senate Banking Committee in the 118th Congress but lost to Bernie Moreno in 2024, is currently running in a special election in Ohio this November against Republican nominee Jon Husted (appointed by Governor Mike DeWine after JD Vance resigned to become Vice President). The winner of this election serves only until 2028, highlighting how volatile the Senate's power structure is about to become.

Brown's previous tenure might give him priority over Warren for the Banking Committee chairmanship, although this is unclear; both senators have historically been hostile to the priorities of the digital asset industry.

The CLARITY Act in its current form would be very unlikely to emerge from a future Senate Banking Committee chaired by Elizabeth Warren or Sherrod Brown.

The current bipartisan coalition was forged under specific conditions: a crypto-friendly White House, a Republican Banking Committee Chairman, the successful passage of the GENIUS Act (demonstrating bipartisan viability), and a crypto industry that actively lobbied and spent heavily to elect crypto-friendly candidates and sway previously skeptical lawmakers in the 2024 elections. These conditions may not persist.

Senator Lummis has publicly warned that if the CLARITY Act fails this year, comprehensive market structure legislation could be delayed until 2030 or later, as a new Congress would need to restart the legislative process from scratch with new committee compositions and potentially different political motivations.

Even if Republicans retain their majorities, political enthusiasm for complex, multi-stakeholder financial regulation could wane during a lame-duck session or the initial months of a new Congress as leadership focus shifts to organizing committees, confirming nominees, and setting new legislative agendas. Therefore, the current window is extremely favorable and may not open again soon.

Even without the CLARITY Act, the pro-crypto regulatory environment may only last until the end of the Trump presidency. Regulators have already advanced the crypto industry through executive relief, interpretive guidance, and formal rulemaking. These developments have spurred major banks, brokerages, and exchanges to take concrete steps to build blockchain infrastructure and offer digital asset services. The integration achieved by traditional capital market participants over the next two and a half years might be sufficient to prevent major regression in the crypto industry, even under a future hostile administration.

However, the key issue is duration and permanence. The regulatory progress made so far, including joint SEC/CFTC interpretive statements, SEC no-action letters, and OCC guidance on bank crypto activities, exists outside statutory law and can be reversed by a future administration without congressional approval.

While the crypto industry might not face a crisis without the CLARITY Act in 2026, its runway could be shortened. In the long term, a comprehensive market structure bill is essential to govern the digital asset industry for decades to come.

Outstanding Issues in Ongoing Senate Negotiations

While the "stablecoin rewards" issue has dominated headlines and is widely considered the primary (and perhaps sole) major obstacle blocking the bill, several other critical issues are simmering beneath the surface. Here are the main sticking points:

Stablecoin Rewards

We are awaiting the public release of the compromise text agreed upon by Senator Tillis and Senator Alsobrooks (D-MD).

Galaxy understands that the text still bans rewards "solely for holding" stablecoins but permits well-defined rewards tied to activities like payments, transfers, or platform usage. If true, this is essentially similar to the deal Coinbase explicitly rejected in January.

However, we need to see the actual text, which senators have kept under wraps. The CEA report released on April 8, estimating that a full ban on yield-bearing crypto would only increase bank lending by $2.1 billion (0.02% of total loans) while costing consumers ~$800 million, significantly undermined the banking sector's argument about deposit outflows.

The American Bankers Association rebutted almost immediately, arguing the CEA analyzed the wrong question by only studying the impact of the current ~$300 billion stablecoin market, not modeling a future where yield-bearing stablecoins compete substantively with the banks' $18 trillion deposit base. The framing of the debate is significantly different, and the scope of the analysis will likely determine the outcome.

Coinbase's CEO changing his opposition to the bill on April 10 seems to have cleared the industry's biggest previous hurdle. The text likely hasn't changed materially from what Coinbase rejected in January, but the political calculus has shifted: Bessent's public pressure, the CEA report, and Coinbase's pending application for a national bank charter (which might face a federal regulatory pathway regardless of the bill's outcome) all likely influenced Coinbase's change of heart.

However, the underlying commercial tension between exchanges and banks over stablecoin yields persists.

The Blockchain Regulatory Certainty Act (BRCA)

Included as Section 604 of the Senate Banking Committee's Manager's Amendment (ANM), BRCA clarifies that software developers and infrastructure providers who do not hold or control user funds are not money transmitters under the Bank Secrecy Act.

The crypto industry considers this provision a red line, arguing it's crucial for keeping open-source development in the U.S. It faces opposition from law enforcement and strong bipartisan pushback from the Senate Judiciary Committee. In January, Judiciary Committee Chairman Chuck Grassley (R-IA) and Ranking Member Dick Durbin (D-IL) co-signed a letter to Banking Committee Chairman Scott and Ranking Member Warren opposing the inclusion of BRCA in federal law.

They argue the Banking Committee is modifying Title 18 of the U.S. Code (specifically 18 U.S.C. § 1960, which prohibits unlicensed money transmission) without consulting the committee responsible for federal criminal law. They warn it would create a "blind spot" for state and local law enforcement agencies that rely on FinCEN registration information to track money flows in investigations of potential money laundering, terrorist financing, and drug/human trafficking.

Additionally, former Nevada Attorney General and Banking Committee member Catherine Cortez Masto (D-NV) has been pushing for changes to address law enforcement concerns. The National Sheriffs' Association and the National District Attorneys Association have also weighed in, warning that the bill's DeFi provisions could limit prosecutors' ability to pursue financial crime cases.

The crypto industry counters that BRCA does not modify AML statutes under 18 U.S.C. §§ 1956 and 1957, does not limit prosecutions for fraud or sanctions evasion, and merely codifies FinCEN guidance and the DOJ's recently articulated position that genuinely decentralized, non-custodial software does not constitute money transmission.

Satisfying the demands of Senators Grassley and Cortez Masto without significantly weakening this provision is one of the most delicate negotiations in the bill.

Ethics Amendment

Democrats have been pressing for provisions in the bill that would prohibit senior government officials, elected officials, and their immediate family members from holding or profiting from digital assets while in office. This issue directly targets the Trump family's various crypto ventures and has been a Democratic priority throughout the negotiations.

This issue was not included in the Banking Committee's January ANM draft, but several Democratic senators have indicated they will push for ethics amendments during committee markup or on the Senate floor. While unlikely to be a roadblock in committee, it could become a focus during floor debate, where any senator can propose an amendment, and Democratic votes are needed to reach 60.

SEC Exemptive Authority

Section 505 of the Senate Banking Committee's ANM deals with the tokenization of securities and other real-world assets. Some market participants and former regulators argue this section unduly restricts the SEC's ability to use its exemptive and no-action relief tools to foster innovation in digital asset markets.

In short, many fear it could render the SEC's "innovation exemption" process unworkable or even illegal by imposing rigid statutory requirements that limit the Commission's traditional discretion under statutes like Section 28 of the Securities Act and Section 36 of the Exchange Act.

Lawyers and compliance professionals involved in tokenization projects, as well as some Democrats, have