Galaxy Research Director: The Setbacks Behind the Market's Underestimation of the CLARITY Act

Author: Alex Thorn, Head of Galaxy Research Department

Compiled by: Jiahua, ChainCatcher

The U.S. Senate failed to advance the CLARITY Act on Tuesday, which is a heavy blow to those who have been involved in legislative efforts regarding cryptocurrency market structure for many years.

Although North Carolina Republican Senator Thom Tillis still retains the possibility of reconsidering the motion to terminate debate before the end of this Congress, there are also behind-the-scenes efforts to revive the bill, but we do not expect any substantial progress this year. The motion to terminate debate is a key step in pushing a bill to end debate and move to a voting procedure.

We believe the CLARITY Act is an excellent bipartisan legislative achievement. It could have provided strong investor protection measures, helped curb illegal funding activities, promoted innovation, and solidified the global leading position of U.S. capital markets.

For years, many in the U.S. Congress, regulatory agencies, and the industry have put in tremendous effort for this bill, and they deserve full recognition and thanks.

However, while we lament the potential demise of this excellent legislative achievement that embodies the hard work of many, we must look forward.

The reality is that Bitcoin, cryptocurrencies, and blockchain do not rely on the CLARITY Act to continue developing in the short term, at least for now.

Blockchain is thriving, global applications are accelerating, and market regulators are taking action. At least during the remainder of this administration, the U.S. regulatory environment is not only favorable to the cryptocurrency industry but is generally supportive of its development.

These measures may be reversed by a future government that is unfriendly to the cryptocurrency industry, but at least they have provided breathing room for the industry to continue pushing for future legislation.

Regulators are Filling the Regulatory Gaps

The U.S. Securities and Exchange Commission (SEC) has completely dismantled the anti-cryptocurrency regulatory framework established during the previous administration.

Many may not know that during Gary Gensler's tenure as chairman, the SEC not only held an adversarial stance towards the cryptocurrency industry but also did not genuinely invest effort in addressing how existing rules apply to crypto assets. The previous SEC leadership claimed that nearly all crypto assets were securities but was unwilling to do the more difficult work of studying how to incorporate these assets into the securities law framework.

Today's SEC not only supports financial innovation but is also continuously explaining how crypto assets fit into the existing regulatory framework and where adjustments to the current framework are needed to accommodate this new technology.

Currently, the SEC has dozens of staff analyzing existing rules and regulations, soliciting feedback from various parties, and drafting regulatory guidance and proposed new rules. Compared to the previous chair's enthusiasm for advancing regulation through litigation, refusing to seriously respond to calls for clear rules, and pushing legitimate businesses overseas, Chairman Paul Atkins and commissioners Hester Peirce and Mark Uyeda are promoting a regulatory culture that respects professional judgment, encourages innovation, and values investor protection. The difference between the two is very clear.

The situation at the Commodity Futures Trading Commission (CFTC) is similar. Under Chairman Mike Selig's leadership, the CFTC is collaborating with the SEC more closely than ever before, gradually ending the regulatory turf battles between the two agencies over crypto assets.

Chairman Selig has advanced the formulation of rules related to prediction markets, expanded the use of stablecoins as collateral for derivatives trading, approved the first Bitcoin perpetual futures contracts within the United States, and clarified how the CFTC will handle similar approvals in the future. Bitcoin perpetual futures are derivative contracts with no fixed expiration date.

The SEC and CFTC are jointly providing clearer regulatory guidance on the positioning and trading methods for different types of digital assets. These are not special favors from regulators to the cryptocurrency industry but rather the two commissions are diligently completing a difficult task: explaining how securities law and commodity law apply to new technologies and adjusting the regulatory framework when necessary.

Other federal agencies have also taken action.

In March 2025, the Office of the Comptroller of the Currency (OCC) rescinded its previous "non-objection" mechanism. Under this mechanism, national banks had to obtain a "non-objection" opinion from regulators before engaging with crypto assets or using blockchain.

The Federal Deposit Insurance Corporation (FDIC) also eliminated similar requirements for non-Federal Reserve member banks. These two actions significantly dismantled the regulatory mechanisms supporting "Operation Chokepoint 2.0," which generally refers to practices that restrict cryptocurrency companies from obtaining accounts, payment, and financial services through the banking system.

Subsequently, the OCC began issuing conditional national trust bank charters to cryptocurrency companies, and the Federal Reserve also terminated its "Novel Activities Supervision Program," which previously imposed "enhanced supervision" on companies involved in cryptocurrency activities.

In April 2025, the Department of Justice issued a memorandum titled "Ending Regulation by Enforcement"; the Department of Labor rescinded its harsh guidance on crypto assets and 401(k) retirement savings plans from 2022; and the IRS provided safe harbor arrangements for pledge activities in grantor trust structures used by commodity ETFs. A grantor trust is a trust structure that, for tax purposes, treats the related income as directly held by the grantor.

Compared to the past few decades, federal agencies are now more proactive in promoting responsible innovation and are more willing to invest effort. Blockchain is seen as a powerful technology that can empower both individuals and institutions.

According to Galaxy Research, all of the top 30 banks globally are developing digital asset products, and two-thirds of the top 30 asset management companies are also engaging in related businesses. Last year, the number of announcements regarding digital asset products from the top 150 traditional financial institutions reached a record high, and it is expected to exceed this record in 2026.

Legislation Remains Irreplaceable, the Industry Needs to Utilize the Window of Opportunity

We must acknowledge that as the chapter of the CLARITY Act may be closing, an era is also coming to an end.

SEC Commissioner Hester Peirce will leave office in November. Tyler Williams left the Treasury Department in July. Patrick Witt plans to leave the White House at the end of September to undergo officer training.

Thom Tillis (North Carolina Republican) and Cynthia Lummis (Wyoming Republican), who serve on the Senate Banking Committee and play key roles in digital asset legislation, will also retire from Congress. Many key policy staff in Congress may also leave for other jobs.

The existing legislative texts, research findings, and policy foundations remain, but when related topics are discussed again in the future, the balance of power, market environment, and participants may have changed.

The CLARITY Act was never meant to be the endpoint of this work; it has always been just the starting point. We may have lost this vote, but we have not lost this debate.

However, there are some things that regulators cannot do: the CFTC cannot independently obtain regulatory authority over the spot market; any interpretive documents cannot automatically exclude the applicability of the regulatory systems of the 50 states; and any regulatory relief protecting non-custodial developers, who do not hold assets for users, would only be a temporary measure if not written into federal law, subject to revocation at any time.

Regulators can only interpret the law; only Congress can amend the law.

However, the next two years should not just be a time of waiting. We have the opportunity to accumulate practical evidence to demonstrate that the spot market can be effectively monitored, tokenized securities can be safely cleared, settled, and traded around the clock, and stablecoins can transfer funds on a large scale quickly and at low cost without triggering systemic issues.

In this way, when Congress eventually re-discusses the structure of the cryptocurrency market, the scale of industry applications will be larger, and the practical basis supporting related legislation will be more substantial.

For the past decade, the industry has been calling for clear rules, but what it received was litigation. Now, the situation has reversed, and this is actually a much better scenario: the government is willing to genuinely invest effort in advancing rule-making, while the industry has a limited window of opportunity to prove that this work is worth continuing.