Why didn't the CLARITY Act bring about a rally in crypto concept stocks?

Author: Charlie Liu, Partner at Generative Ventures

Last week, the crypto industry finally experienced a moment that should theoretically excite everyone.

The U.S. Senate Banking Committee advanced the CLARITY Act. This industry has waited many years for the market structure bill, and it finally moved forward from endless debates, hearings, lobbying, lawsuits, and enforcement shadows. According to the narrative logic of the past few years, this should be a collective celebration for crypto stocks. Clear regulation, institutional entry, valuation re-rating, and a continued bull market. The familiar four-piece set, like the appetizers that are always reintroduced in each market cycle.

But the market didn’t cooperate.

After the Clarity Act was passed out of committee, crypto-linked stocks like Coinbase, Strategy, Circle, Robinhood did see a brief rally. But the next day, as risk assets retreated, they were sold off together. Bitcoin fell below $80k, and several representative stocks dropped between 4% and 8%. If you only look at the headlines, this reaction seems somewhat irrational.

Isn’t regulation supposed to be good news? Why didn’t stocks keep rising after the positive signals?

This is precisely the question this article aims to discuss.

I believe the market isn’t stupid this time. On the contrary, it may have entered the next phase earlier than the crypto circle: Regulatory good news addresses whether you can survive, whether you can operate, and whether you can be recognized by the mainstream financial system; but the secondary market truly cares about how you make money, whether earnings are stable, if profit margins can withstand cycles, and if customers are willing to pay continuously.

In other words, the Clarity Act reduces survival discount but does not automatically create business models.

That might sound a bit disappointing, but it’s also a sign of industry maturity. In the early stages, the most important thing is to prove you shouldn’t be eliminated; after entering the mainstream, the key is to prove you deserve normal valuation. The former relies on lobbying, ideology, and technological vision; the latter depends on revenue quality, operational leverage, customer retention, and profit statements.

After the coming of age, no one will give you candy just because you’ve grown up.

The Clarity Act is indeed important. It attempts to clarify who regulates digital assets, under what circumstances they are securities or commodities, what makes a DeFi platform truly decentralized, and whether tokenized securities still fall under existing securities laws. It also places digital commodity exchanges, brokers, and dealers under the AML, KYC, and due diligence framework of the Bank Secrecy Act. For crypto companies that have long struggled between the SEC and CFTC, this is a huge step forward.

But because it’s so important, the market will quickly move on to the second layer of questions.

If regulation finally becomes clear, is Coinbase still a highly cyclical trading platform? Will Robinhood’s crypto revenue decline be absorbed by broader consumer finance platform growth? Circle’s USDC growth is strong, but is it primarily a rate-driven stablecoin issuer, or a truly network-effect-driven financial infrastructure company? Is Strategy an operating company or a Bitcoin exposure machine wrapped in capital structure?

These questions could previously be masked by regulatory uncertainty. Now, they can’t.

Let’s start with Coinbase. It’s probably one of the most direct beneficiaries of the Clarity Act. As the largest compliant crypto exchange in the U.S., Coinbase has borne the costs of many regulatory battles over the past few years and is therefore best positioned to enjoy the regulatory dividend once clarity is achieved. The problem is, its Q1 2026 financial report reminds us that compliance status and profit stability are not the same thing.

In Q1 2026, Coinbase reported a net loss of $394.1 million, transaction revenue fell about 40% year-over-year to $756 million, and subscription and services revenue also declined 13.5% to $583.5 million. CFO Alesia Haas mentioned in the earnings call that the total crypto market cap and total trading volume both declined over 20% month-over-month.

These figures are harsh because they reveal Coinbase’s core issue has never been just regulation. The clearer the regulation, the more it resembles a normal financial institution; but the more it resembles a normal financial institution, the more investors will question how its revenue structure compares to CME, ICE, Nasdaq, Charles Schwab, Robinhood, and even Visa and Mastercard.

Exchanges can do well, of course. CME and ICE are great companies. But a great exchange’s valuation isn’t supported solely by “asset prices rise, and everyone trades,” but by multiple products, multiple assets, diverse customer types, clearing networks, data services, institutional workflows, and strong operating leverage.

Coinbase is moving in this direction, with derivatives, custody, stablecoins, Prime, Base, and subscription services all part of the answer. But the reality in Q1 is that trading volume beta has not yet been truly tamed.

Robinhood is another interesting comparison.

In Q1 2026, Robinhood’s total net revenue grew 15% year-over-year to $1.07 billion, net profit was $346 million, Gold subscribers increased 36% YoY to 4.3 million, and total platform assets grew 39% YoY to $3.07 trillion.

At first glance, it looks much steadier than Coinbase.

But a closer look at the revenue mix shows crypto revenue declined 47% YoY to $134 million, dragging down transaction-based revenue; growth came from options, equities, event contracts, net interest revenue, and Robinhood Gold.

This isn’t a bad thing. Quite the opposite, it indicates Robinhood’s strategy is more like a consumer financial super app rather than a pure crypto company.

Crypto is a strong engagement lever for Robinhood—it’s the entry point for young users into financial markets and a revenue spring during good times. But what really supports Robinhood’s valuation is increasingly likely to be its user account system, cash balances, margin books, subscriptions, retirement accounts, prediction markets, and cross-asset trading.

So when the market sells off crypto-linked stocks, Robinhood gets sold off with them—somewhat reasonable, somewhat rough. The reasonableness is that it is indeed affected by crypto sentiment; the roughness is that it’s not purely a crypto beta.

For Robinhood’s management, after regulatory good news, the real task isn’t to portray itself as a crypto winner but to clarify the role of crypto within the entire financial life platform.

Strategy is the third type of asset. Its logic is the simplest and most extreme.

In Q1 2026, Strategy disclosed holding 818,334 Bitcoin, making it the world’s largest corporate holder, explicitly positioning itself as a Bitcoin Treasury Company. This company is hard to analyze with traditional operating company frameworks. It’s more like a capital market engineering: through common stock, preferred stock, debt, and various financing tools, transforming the company into a structure that continuously absorbs Bitcoin.

Fans say it’s the purest Bitcoin leveraged vehicle. Critics say it’s a high-risk experiment tying corporate governance, capital structure, and asset price reflexivity together. Regardless of stance, one thing must be acknowledged: Strategy and Coinbase, Robinhood, Circle are not the same asset. Labeling them all as crypto stocks can easily obscure the real sources of risk.

Next is Circle.

Circle is the most worth elaborating on in this article because it stands at the most comfortable—and also the most uncomfortable—position in the stablecoin industry.

The comfort comes from the fact that USDC’s fundamentals are very strong. In Q1 2026, Circle disclosed USDC circulation at quarter-end reached $77 billion, up 28% YoY; on-chain transaction volume hit $21.5 trillion, up 263%; total revenue and reserve income reached $694 million, up 20%. These numbers show stablecoin adoption isn’t just a story on paper or a crypto hype; it’s genuinely entering trading, payments, collateral, cross-border flows, and treasury workflows.

The discomfort is that Circle’s revenue quality has not fully shed the shadow of interest rates and distribution structures.

In the same quarter, Circle’s reserve income reached $653 million, up 17%, mainly driven by growth in USDC circulation, but the reserve return rate fell 66 basis points, offsetting part of that growth. Meanwhile, distribution, transaction, and other costs increased 17% to $407 million, operating expenses surged 76% to $242 million, and net profit actually declined 15% YoY to $55 million.

This is the awkwardness of stablecoin issuers. The market likes stablecoins because they are large-scale, regulation-friendly, simple products, and clear narratives. But if issuers mainly rely on reserve income, their revenue is driven by three variables: USDC circulation, short-term interest rates, and distribution costs. Rising circulation is good, but falling interest rates compress income; stronger distribution partners mean higher revenue share; increased competition makes customer acquisition and ecosystem incentives more expensive.

This is also why Circle’s ARC Token, released last week, could be a big variable.

On the surface, Circle is conducting a token presale on its own chain. The ARC Token presale raised $222 million, implying a fully diluted network valuation of $3 billion. Top investors include a16z crypto, Apollo Funds, ARK Invest, BlackRock, Bullish, General Catalyst, Haun Ventures, ICE, Janus Henderson, Standard Chartered Ventures, and other top-tier firms.

Circle states that the ARC Token whitepaper describes it as a native coordination asset supporting Arc’s governance, security, and network operations.

From a traditional crypto perspective, this looks like another L1/L2 token issuance story. But considering Circle’s profit profile and strategic position, Arc is more like a defensive offensive.

Defense, because Circle can’t forever be just a USDC issuer. Stablecoin issuance is a good business, but not a safe enough one. Banks will continue to pressure around stablecoin rewards and deposit outflows; payment companies will embed stablecoin rails into their networks; exchanges will issue or support their own stablecoins; Stripe, PayPal, Visa, Mastercard, Robinhood, Coinbase won’t hand over the future dollar payment network entry to Circle.

Once stablecoins become part of the public financial infrastructure, the bargaining power of a single issuer may actually be compressed.

Offense, because Arc aims to push Circle from “dollar token issuer” toward “on-chain financial operating system.” Circle is also advancing CPN, Managed Payments, Agent Stack, Circle Gateway, Agent Wallets, and Agent Marketplace.

Together, these point in the same direction: making USDC not just held and transferred but embedded into corporate treasuries, institutional payments, AI agent transactions, developer workflows, and cross-chain settlements. Circle disclosed that CPN’s trailing 30-day annualized transaction volume reached $8.3 billion, and it launched Managed Payments, allowing financial institutions to implement stablecoin payments without managing digital assets themselves.

But this also raises a counterquestion: is Arc too complex?

Circle’s original clear story was: USDC is a compliant dollar stablecoin, and Circle is a regulated stablecoin network. This story is simple, understandable, and attractive to institutional investors. Now, with Arc, ARC Token, Agent Stack, CPN, and Managed Payments added, the story has grown bigger and more complicated.

Investors will start asking whether Arc’s token economics align with CRCL shareholders’ interests. Will network incentives dilute company profits? How will the regulatory attributes of ARC Token be defined? If Arc moves toward a certain degree of decentralization, how will governance and responsibility boundaries be handled? If not decentralized, how does it fundamentally differ from other permissioned financial rails?

Circle itself admits in its risk disclosures that Arc and ARC Token face risks related to execution, market, operational, technological, cybersecurity, validator, governance, token price volatility, legal, regulatory, and structural issues. These aren’t footnotes—they will be central to the valuation debates in the coming years.

Therefore, the most accurate assessment of Circle isn’t “positive regulation” or “token farming.”

More precisely, it’s an attempt by Circle to break free from the valuation framework of stablecoin issuers. It aims to shift from a reserve income business to a network business, from USDC circulation to settlement volume, from interest rate-sensitive assets to part of enterprise and financial institution workflows.

If successful, Circle’s valuation logic will shift from “stablecoin balance times interest spread” to “on-chain financial network’s take rate, velocity, and ecosystem value.” If it fails, Arc could become an expensive, complex, regulation-uncertain new business, making the previously clear USDC story more ambiguous.

This brings us back to the main theme of this article.

Why doesn’t regulatory good news necessarily lead to secondary market gains? Because clear regulation simply moves the industry from the gray area onto the table. Once at the table, the competition isn’t about who can talk about the future best, but who can turn the future into revenue consistently.

For investors, the broad category of crypto stocks is no longer sufficient.

Coinbase is a hybrid of exchange and financial infrastructure; the key is whether trading volume beta can be diluted by derivatives, custody, stablecoins, Base, and subscription services.

Robinhood is a retail financial platform; crypto is one engagement and monetization module. The key is whether it can continue to deepen user assets, subscriptions, interest income, and cross-asset trading.

Circle is a stablecoin and on-chain payment network; the key is whether it can shift from reserve income to fee-based network economics.

Strategy is a Bitcoin treasury structure; the key is Bitcoin price, financing capability, and capital structure reflexivity.

All are called crypto stocks, but these four companies face four completely different risks.

For company decision-makers, regulatory good news isn’t a reason to celebrate but a prompt to re-prioritize. Many things that could be “blocked by regulatory uncertainty” before can no longer be. Institutional clients will demand clearer compliance controls; corporate clients will seek smoother integrations; payment clients will want clearer settlement advantages; developers will require more stable toolchains; investors will want more predictable revenue mixes.

This is why I believe the industry will see fewer ideological wars and more profit-and-loss battles moving forward.

Over the past decade, the crypto industry has been best at telling asset stories. Bitcoin as digital gold, Ethereum as the world’s computer, DeFi as open finance, NFTs as digital ownership, stablecoins as internet dollars, even AI agent-native currencies.

These stories are valuable—they’ve taken the industry from the fringe to today. But the secondary market ultimately won’t pay forever for abstract nouns. It will ask more mundane, less glamorous, but more critical questions: what’s the take rate? Who are the customers? How’s retention? Can costs be cut? What if interest rates fall? What if competition intensifies? Who bears the cost of regulatory compliance? Do token and equity values align?

It may sound less inspiring. But that’s the price of entering the mainstream financial system.

If the CLARITY Act ultimately passes, the crypto industry will face an important moment. But this moment isn’t like a graduation ceremony; it’s more like the first day on the job. The past debates were about whether you qualify to enter the building; the next question is what value you actually create inside it.

The market’s current reaction might be a preview of this new phase.

It doesn’t mean regulatory good news isn’t important. It just means that regulatory good news alone is no longer enough.