Deep Dive into the CLARITY Act: How the Commodity Status of BTC and ETH Will Reshape Cryptocurrency Regulation

On May 14, 2026, the U.S. Senate Banking, Housing, and Urban Affairs Committee advanced the Digital Asset Market Clarity Act of 2025 (CLARITY Act) to the full Senate for review with a bipartisan vote of 15 in favor and 9 against. All 13 Republican members voted in support, while Democratic Senators Ruben Gallego and Angela Alsobrooks crossed party lines to join the support.

This committee-level progress ended a four-month legislative deadlock on the bill. The bill had already passed the U.S. House of Representatives in July 2025 with a high vote of 294 to 134, but was delayed multiple times in the Senate Banking Committee due to core disputes over stablecoin yield provisions and other issues. The committee’s approval signifies that the CLARITY Act is only a few critical steps away from federal legislation—namely, a full Senate vote, reconciliation between House and Senate versions, and presidential signing.

However, committee approval is just the first narrow gate in the entire legislative process. The full Senate vote requires overcoming a lengthy debate threshold of 60 votes to end filibuster. Currently, Republicans hold 53 seats, meaning at least 7 Democratic Senators must cross party lines to support the bill. The two Democratic votes at the committee stage provide a preliminary foundation but are far from enough to secure the necessary bipartisan support for the full chamber vote. The White House has set a goal to sign legislation before July 4, but the legislative window is narrowing as Congress’s schedule advances.

How Will the Boundaries of SEC and CFTC Jurisdiction Be Redefined?

The core logic of the CLARITY Act aims to end the long-standing jurisdiction dispute over digital assets between the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). This dispute has left the crypto industry in a regulatory gray area, with projects uncertain about the compliance boundaries of their tokens, exchanges unsure about asset classification, and institutional investors hesitant due to legal uncertainties.

The bill proposes a systematic framework for classifying digital assets. Under this proposed legal framework, digital assets are divided into three main categories: digital commodities regulated by the CFTC, investment contract assets still under SEC jurisdiction, and permissioned stablecoins regulated by banking authorities.

Specifically, the bill introduces a certification mechanism for “mature blockchain systems.” If a blockchain network reaches sufficient decentralization—considering factors such as absence of controlling entities, open-source code, balanced ownership distribution, and actual network operation—its native tokens can be classified as digital commodities. This classification allows them to “graduate” from SEC securities regulation into the CFTC’s commodity trading framework. The bill sets a 49% actual beneficial ownership threshold for this transition and, combined with a de-centralized governance exemption clause, provides a clear legal pathway for mature blockchain projects.

The underlying logic is that tokens issued during project fundraising should be regulated as securities to protect investors, but once the network matures, token transfers in daily trading should fall under commodity market regulation to reduce compliance burdens. SEC and CFTC will each operate within their respective domains, eliminating industry guesswork about asset jurisdiction—or, more precisely, removing the fear of suddenly receiving an SEC enforcement letter.

What Institutional Impact Will the Non-Security Classification of Bitcoin and Ethereum Have?

One of the most market-focused aspects of the bill is the statutory confirmation of Bitcoin and Ethereum as commodities. Although the SEC and CFTC have previously declared Bitcoin as non-security and gradually included Ethereum within the digital commodity framework through enforcement statements and market communications, these classifications have been based on administrative guidance and enforcement positions, lacking legislative firmament. Future administrations could overturn them via administrative memoranda without legislative procedures.

The CLARITY Act will enshrine this classification into law, explicitly codifying Bitcoin and Ethereum’s status as digital commodities in federal statutes. This means future governments cannot unilaterally reclassify them as securities through administrative actions. For institutional investors, this systemic change is profound: banks, custodians, and ETF issuers need legislative-level certainty when making long-term compliance infrastructure investments, not just administrative interpretations—since these are considered entirely different risk levels in legal risk assessment frameworks.

Market data indicates that this legislative certainty could trigger significant capital flows. According to Citigroup analysis, passage of the bill could bring approximately $15 billion in net inflows into Bitcoin ETFs, aligning with Citi’s price target for Bitcoin by the end of 2026. Standard Chartered further predicts that, post-legislation, XRP ETFs could see net inflows of $26k to $8 billion. These forecasts rely on the premise that regulatory certainty provided by the CLARITY Act will substantially lower the compliance barriers for institutional capital, unlocking previously sidelined allocation demands due to legal uncertainties.

How Will Reserve Requirements and Redemption Rights for Stablecoin Issuers Reshape Market Structure?

Stablecoins are among the most contentious areas in the CLARITY Act’s legislative process. The bill establishes a comprehensive federal regulatory framework covering issuance, reserves, and redemption of permissioned stablecoins, with core provisions detailed in the 309-page revised bill text published in May 2026.

The primary requirement is a 1:1 reserve ratio with high-liquidity assets. Stablecoin issuers must hold equivalent high-quality liquid assets—such as U.S. Treasuries and cash in segregated accounts—for each circulating stablecoin, strictly limiting issuer credit risk. The second key provision affirms the statutory redemption right of holders: issuers must redeem stablecoins at face value into USD within a specified period—typically one business day. The bill mandates monthly disclosure of reserve composition and compliance with anti-money laundering and suspicious activity reporting under the Bank Secrecy Act. Additionally, the bill prohibits the issuance of algorithmic stablecoins during a two-year transition period until the Government Accountability Office (GAO) completes a risk assessment, and imposes prudential oversight by the Federal Reserve on stablecoins exceeding $10 billion in issuance.

However, the most complex aspect of stablecoin regulation is not the reserve requirements but the intense tug-of-war over yield provisions. The bill adopts a strict stance: it prohibits paying passive interest solely for holding stablecoins, to prevent direct competition with traditional bank deposits. Nonetheless, it preserves incentivized yields based on actual business activities—such as transaction fees, staking, or DeFi liquidity provision—allowing users to earn rewards through economic participation. This distinction implies that industry profitability models must shift from “static holding” to “behavior-linked” earning, potentially increasing on-chain capital flow efficiency.

How Will Legal Exemptions for DeFi Developers Reshape the Compliance Environment?

The CLARITY Act reflects a cautious balance between technological innovation and financial risk in regulating decentralized finance (DeFi). It provides clear legal protections for software developers, non-custodial wallet providers, node validators, and oracle operators.

Specifically, Sections 309 and 409 explicitly state that open-source developers releasing non-custodial smart contracts or decentralized protocols, under certain conditions, are exempt from being classified as money transmitters, thus avoiding registration with FinCEN, AML compliance, and state licensing obligations. The bill also introduces legal exemptions related to NFTs, excluding the issuance or trading of non-fungible tokens from the scope of remittance regulation. Moreover, if a DeFi protocol meets the bill’s criteria for “true decentralization”—such as sufficiently dispersed validation nodes, absence of controlling entities, and decentralized governance—it can operate without SEC securities registration requirements.

In prior legislative debates, Democratic Senators like Elizabeth Warren proposed stronger regulatory amendments—expanding Treasury sanctions authority, restricting banks’ crypto holdings, and establishing investor protection procedures—which were rejected at the committee stage. These rejections effectively reduce short-term compliance pressures on the DeFi ecosystem.

However, developer protections are not unconditional “regulatory exemptions.” Developers knowingly assisting illegal activities or holding actual control over user funds remain subject to the Bank Secrecy Act and AML regulations. Even after passage, decentralized protocols must implement compliance measures—such as restricting U.S. user access—to fully enjoy the safe harbor protections offered by the bill.

What Are the Practical Obstacles to the Bill’s Passage and Senate Vote?

Despite the successful passage of the CLARITY Act through the Senate Banking Committee in mid-May, market optimism has waned. As of May 27, 2026, the Polymarket platform’s prediction probability of the bill becoming law by 2026 has fallen from over 70% to 54%, with total bets exceeding $37.8 million. The Kalshi platform’s forecast for passage before 2027 has also dropped to 50%, with only a 14% chance of legislative approval before July.

The main factors behind this decline include three major obstacles:

1. The lengthy 60-vote cloture threshold in the Senate. The bill needs bipartisan support from at least 7 Democratic Senators, but the two Democratic Senators who supported the bill at the committee stage have not committed to voting in favor during the full Senate. Compared to the 68-30 bipartisan support for the GENIUS Act in 2025, the current Democratic support base for CLARITY remains insufficient.

2. The deadlock over ethics provisions. A key sticking point is a conflict-of-interest clause aimed at restricting government officials and lawmakers from profiting from inside information in the crypto industry. Democrats want this clause included in the final bill, but the White House has made clear it will not accept restrictions targeting the President or their family. The progress of resolving this disagreement will directly influence whether the bill gains enough bipartisan support.

3. The shrinking legislative window before the August recess. The Senate must complete a full vote before the recess, but the schedule is crowded with other issues like budget debates. Many analysts believe that missing this window could delay further crypto market legislation until around 2030.

How Will the Bill Reshape Institutional Capital Flows and Banking Competition?

The CLARITY Act systematically redefines the interaction rules between traditional finance and the crypto market. The rejection of Amendment 52 in committee, which would have restricted large banks from holding and providing crypto services, means that major banks can now operate within the new legal framework—potentially bringing larger institutional capital and liquidity into the crypto space.

The bill also lays a legislative foundation for ETF approvals. The legal classification of assets at the legislative level will eliminate previous classification disputes that hindered ETF listings. Analysts from Standard Chartered and 24/7 Wall St. forecast that, once enacted, crypto ETFs will see significant incremental capital inflows. For example, spot Bitcoin ETFs have already experienced an average daily inflow of over $532 million in early May, indicating infrastructure readiness for larger institutional participation.

However, the bill’s implications have also heightened concerns among traditional banks. The prohibition on stablecoins paying passive interest reflects fears of a systemic shift of savings deposits into on-chain assets. The stablecoin market has already reached approximately $317 billion in size. If such assets begin offering interest-like yields, traditional banking models could face severe disruption. JPMorgan’s CFO has publicly expressed concern that allowing stablecoins to generate yields could undermine deposit-based funding stability.

How Does the U.S. Legislation Fit into the Global Crypto Regulatory Competition?

The legislative significance of the CLARITY Act extends beyond the U.S. borders. The global crypto market now exceeds $2.6 trillion, with stablecoins around $317 billion, Bitcoin ETF assets approximately $98.6 billion, and other digital assets rapidly growing. The U.S. establishing the first comprehensive federal-level digital asset market framework among major economies would have a direct influence on regulatory approaches in Europe, Asia, and other jurisdictions.

Patrick Witt, Executive Director of the White House’s Digital Asset Advisory Committee, recently stated: “If we don’t set standards and write rules, we’ll only be followers, following others’ lead.” This underscores the strategic intent of the U.S. to shape international standards.

From a long-term industry evolution perspective, the CLARITY Act’s impact may not be limited to short-term price discovery or ETF capital flows but could facilitate a paradigm shift—transforming digital assets from “high-risk fringe innovation” into “mainstream, legitimate asset classes.” Whether 2026 becomes a “charter moment” in U.S. digital asset regulation will depend on the upcoming Senate full vote, which remains a critical test.

Summary

On May 14, 2026, the CLARITY Act passed the Senate Banking Committee with a bipartisan vote of 15-9 and has now entered the full Senate review stage. The bill systematically addresses long-standing regulatory gray areas by establishing legal boundaries between SEC and CFTC jurisdiction, codifying Bitcoin and Ethereum as commodities, setting reserve and redemption requirements for stablecoins, and providing legal exemptions for DeFi developers.

However, the path to enactment faces multiple obstacles: the 60-vote cloture requirement, unresolved ethics negotiations, and a shrinking legislative window before the August recess. Market predictions place the probability of passing in 2026 at around 50-54%, reflecting cautious optimism. The future of the global crypto market and regulatory landscape will be decisively tested in the upcoming Senate vote.

Frequently Asked Questions

What is the official name of the CLARITY Act, and what is its full name in the Senate?

The bill is officially titled the “Digital Asset Market Clarity Act of 2025,” often abbreviated as the CLARITY Act during Senate review. Its bill number is associated with the House-passed H.R. 3633 from 2025.

Does the bill classify Bitcoin and Ethereum as commodities or securities?

The CLARITY Act explicitly classifies Bitcoin and Ethereum as digital commodities under law, regulated by the CFTC rather than the SEC. Previously, such classifications were based on administrative guidance; after enactment, they will have legislative authority, preventing future unilateral reclassification by the government.

What are the specific reserve and redemption requirements for stablecoin issuers under the CLARITY Act?

The bill requires stablecoin issuers to maintain 1:1 reserves of high-quality liquid assets (like U.S. Treasuries and cash in segregated accounts), ensuring holders can redeem stablecoins at face value into USD within about one business day. Issuers must disclose reserve composition monthly and comply with AML obligations under the Bank Secrecy Act. Stablecoins exceeding $10 billion in issuance will be subject to prudential oversight by the Federal Reserve.

Does the CLARITY Act prohibit paying interest on stablecoins?

Yes, the bill prohibits paying passive interest solely for holding stablecoins to prevent direct competition with traditional bank deposits. However, it allows incentive yields based on actual economic activities—such as transaction fees, staking, or DeFi liquidity provision—permissible in compliant scenarios.

After passage, will DeFi developers need to obtain licenses?

The bill provides legal exemptions for open-source developers, non-custodial wallet providers, and node operators, shielding them from being classified as money transmitters if certain conditions are met. This exempts them from registration and AML obligations, except in cases of knowingly aiding illegal activities.

What is the current Senate passage probability, and what are the main obstacles?

As of May 27, 2026, the Polymarket forecast indicates about a 54% chance, while Kalshi’s forecast for passage before 2027 is around 50%. Major obstacles include the 60-vote cloture requirement, unresolved ethics negotiations, and limited time before the August recess.

What impact will the bill have on Bitcoin and Ethereum markets?

The bill’s legislative confirmation of Bitcoin and Ethereum as commodities will eliminate long-term legal risks of reclassification, providing more stable regulatory certainty for institutional investors and ETF issuers. Citi estimates that passage could bring an additional ~$15 billion in net inflows into Bitcoin ETFs.

How will SEC and CFTC jurisdiction be divided?

The bill classifies assets based on decentralization: mature, sufficiently decentralized networks’ tokens are deemed digital commodities under CFTC regulation; assets still in fundraising stages remain under SEC securities regulation, requiring disclosures and compliance.