Can the CLARITY Act be passed within the year? What other obstacles are there?

Tao Zhu, Jinse Finance

Summary: The CLARITY Act's original target of completing legislation by July 4 has been missed, and the window for passage before the midterm elections is rapidly narrowing. If the bill fails to pass before the midterms and the Democrats control Congress after the elections, they will likely demand major revisions. Can the CLARITY Act still pass this year? What are the remaining obstacles?

I. Why push for passage before the midterm elections?

If the CLARITY Act fails to pass Congress before the midterm elections, it may undergo a new round of revisions afterward. If control of the House or Senate changes hands, the chances of the bill passing in its current version diminish further, as Democrats will want to impose their own will on the bill. Therefore, if there is still hope of signing the bill into law in 2026, we have now entered a critical moment.

If the Senate does not act before the August recess, the bill's progress could be delayed until 2027. Specifically, the U.S. Congress has clear legislative schedule constraints. The Senate typically enters its summer recess in August, and after reconvening in September, it will prioritize mandatory tasks such as the budget, appropriations bills, and government funding. As the midterm elections approach, lawmakers will also devote more energy to campaign activities, further compressing the time available for advancing complex legislation.

If the Senate fails to make substantial progress before the August recess, the CLARITY Act will likely be postponed until the end of the year or even the next congressional session. According to Congress's "two-year" legislative cycle, if the bill fails to complete the full legislative process by the end of the current session, the new Congress will generally need to reintroduce the bill and go through the entire process again, including committee reviews, hearings, amendments, and votes in both chambers. This means most procedural progress achieved so far would be lost, significantly increasing legislative costs and uncertainty.

For the crypto industry, whether the CLARITY Act can be enacted quickly not only determines how soon the U.S. digital asset regulatory framework can be clarified but also directly impacts corporate investment decisions, the pace of institutional capital inflows, and the U.S.'s leading position in the global digital asset regulatory competition. Therefore, the Senate's pace of progress in the coming months will be a key variable for the market to watch.

II. What are the current obstacles to the CLARITY Act?

Ethics Provision

Democrats have repeatedly stated that they will not pass the bill unless it includes an ethics provision restricting members of Congress, senior government officials, the President, or the Vice President from participating in cryptocurrency market transactions.

Last week, Trump disclosed his 2025 financial report, revealing that his income last year reached $2 billion. Of that, approximately $1.4 billion came from the crypto industry, including royalties from his Memecoin company, token sales from World Liberty Financial, and trading revenue from Abu Dhabi investors. In contrast, his 2024 financial report showed total income of only "tens of millions of dollars." Trump also disclosed holding over $100 million worth of various cryptocurrencies, as well as small stakes in companies like Corewave.

Senator Elizabeth Warren, the senior Democrat on the Senate Banking Committee, called for the inclusion of an ethics provision in the CLARITY Act. She said, "The cryptocurrency legislation about to be considered by the Senate must prevent the President, Vice President, senior government officials, members of Congress, and their families from profiting from the crypto industry. Otherwise, it will only fuel Donald Trump's unbridled cryptocurrency corruption."

Similarly, Senator Ruben Gallego posted on X after the disclosure that he would "do everything in his power to fight (Trump's) corrupt crypto dealings."

U.S. Senator Kirsten Gillibrand has said, "Without an ethics provision, this bill will have no votes. We must never allow members of Congress, senior government officials, the President, or the Vice President to use their insider connections to profiteer from these industries. This is the worst kind of pay-to-play; it's the worst campaign finance violation; it's a trampling of the Constitution."

Steve Rattner, a contributing opinion writer for the New York Times, noted that Trump has made $2.3 billion through four different cryptocurrency schemes since the start of his presidency. The common thread: the Trump family reaps huge profits while you suffer heavy losses.

According to the New York Times, as of the end of June, nearly 1 million investors had suffered cumulative losses of approximately $3.81 billion on Trump-related Meme investments. Crypto analytics firm Nansen said that the token trading mechanism allows Trump to profit regardless of price movements, as his revenue mainly comes from transaction fees and ongoing market trading activity, while the social platform Truth Social's repeated promotion of the tokens further amplified trading volume.

Developer Protection

Section 604 of the bill incorporates the Blockchain Regulatory Certainty Act, protecting non-custodial software developers and node operators from complying with money transmitter registration and Bank Secrecy Act obligations. This means that writing and publishing open-source code that does not control customer funds should not carry the same regulatory burden as operating a financial intermediary. For the DeFi protocol ecosystem, where developers currently face ongoing legal uncertainty, Section 604 is the most practically innovative part of the bill.

The National District Attorneys Association disagrees. In a letter to Senate leadership, the association stated that Section 604's protections for developers would severely undermine law enforcement's ability to investigate and prosecute crypto-related crimes. The National Sheriffs' Association and the International Association of Chiefs of Police expressed similar concerns. The White House Crypto Council convened representatives from these organizations to seek a solution and facilitated the first law enforcement organization—the National Organization of Black Law Enforcement Executives—to support the CLARITY Act. However, before the recess, the core dispute over the scope of Section 604 remained unresolved.

Stablecoin Yields

There is also controversy over how the CLARITY Act regulates stablecoin rewards for exchanges and custodians. Coinbase earns approximately $1.35 billion annually from USDC rewards (Note: Coinbase currently shares USDC reserve earnings with Circle, so the final version of the stablecoin yield provisions will directly affect its profit source). Whether this revenue can be retained in the final text depends on the terms advocated by the American Bankers Association and related industry groups. They argue that the provision has a loophole, allowing digital asset platforms to offer yields equivalent to interest, circumventing the GENIUS Act's prohibition on issuers paying interest. Crypto participants counter that the activity-based rewards provided by DeFi protocols are structurally distinct from deposit interest, and conflating the two would restrict legitimate financial activities without addressing systemic risk. This provision remains one of the most debated points in the bill.

III. Can the CLARITY Act pass this year?

Most retail traders expect the bill to pass smoothly in both the House and Senate. However, some believe that even if the bill passes, there will be no substantive progress in 2026.

According to a Stocktwits survey of 3,700 respondents, 49% think the CLARITY Act will pass both chambers this year, even though the bill has been stalled since January.

Polymarket also shows 49% believe the CLARITY Act will pass both chambers this year, down from 70% in mid-May, due to concerns over ethics provisions, illegal financing, and the Senate's limited floor time.

Galaxy Research's Alex Thorn lowered the probability of the bill passing in 2026 to 60% in early June, citing timing rather than substance as the main risk.

Astraea Law predicts the bill will take effect in August but warns of the risk of coordinating agreements.

Senator Lummis insists that signing the bill in August remains feasible but warns that if it fails to pass by August, the next viable window for legislative action could be delayed until 2030, when a new Congress would have to start rebuilding a bipartisan coalition from scratch. Lummis believes the CLARITY Act will "lay the foundation for 21st-century financial services" and is our generation's contribution to that legacy. "Let's get this done."

Some traders also say that given the vote on confirming Walsh as the next Fed Chair, the chances of the CLARITY Act passing are "zero."

Analysts suggest that if Democrats win a Senate majority in November and the CLARITY Act fails to pass before the August recess, the bill could be delayed until next year or even later.

IV. What happens next?

The Senate will reconvene on July 13. For the bill to pass before 2026, specific steps must be completed in a specific order.

First, the Senate Banking Committee's text must be reconciled with the Senate Agriculture Committee's Digital Commodity Intermediary Act—a staff-level task involving commodity provisions related to the CFTC, which has not yet been completed.

Second, disputes over the ethics provision, Section 604, and stablecoin yields must be sufficiently resolved to get at least five additional Democratic senators, besides Gallego and Oshbrooks, to vote in favor on the Senate floor.

Third, Majority Leader Thune must prioritize the bill on a House agenda already crowded with standoffs over FISA, NDAA, and the SAVE Act.

Fourth, the House must fulfill Rep. Dusty Johnson's commitment made on June 18 to expedite reconciliation with the House-passed version before the August recess.

The House Financial Services Committee has hearings scheduled for July 14 and 17, with the 17th hearing to be held in New York—a deliberately chosen location to link the bill with institutional financing. These hearings themselves are not procedural hurdles, but they provide a public platform for bill supporters, just as the window for passage opens or closes before the recess.

As of this morning, the bill originally scheduled to be signed today remains at agenda item 423, the Senate is in recess, and the three most critical weeks for U.S. digital asset policy will begin on July 13.

V. Impact on the crypto market

Although the bill has not been completely shelved, its delay has had a profound impact on the cryptocurrency market.

First, due to uncertainty, capital inflows will slow down. The biggest significance of the CLARITY Act is to clarify the regulatory boundary between the SEC and the CFTC, establishing a unified regulatory classification system for digital assets. If the bill continues to be delayed, many institutions will remain on the sidelines. Second, crypto companies will continue to face unclear regulations, as they cannot determine whether a token is a commodity or a security, potentially incurring high compliance costs. Third, the development prospects of the DeFi ecosystem remain unclear. Section 604's protections for non-custodial developers are among the most watched provisions for the DeFi industry. If the provision is ultimately retained, open-source protocol developers, node operators, and infrastructure providers will gain greater legal certainty, potentially revitalizing U.S. DeFi innovation. Conversely, if the protections are removed or significantly tightened, many development teams may still choose to relocate to jurisdictions with clearer regulatory environments. Fourth, on stablecoin yields, if the relevant provisions become stricter, platforms like Coinbase that rely on USDC ecosystem income may need to adjust their business models; if the current version is retained, it could drive further expansion of the stablecoin application market. Finally, in terms of token prices, if the bill is ultimately delayed, it may lead to a short-term market downturn. In the long run, if the bill finally passes, it will benefit the crypto market and further attract traditional financial institutions.