CLARITY’s latest vote, and arguably the most anticipated, failed early today.
To be clear, this was not a vote to pass CLARITY through the Senate. It was a vote on whether senators ready get the bill out of its negotiation phase which lasted months and officially begin examining it in the Senate.
As it failed by 49 votes to 50, well short of the 60 votes needed, it appears that is not the case.
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How we got here
The disappointment comes after optimism around the languishing bill returned this weekend (which is probably what stings the most).
Sunday evening, the Republicans published what they called their final version of CLARITYintegrating over 100 substantial changes requested by Democrats. Notably among them was a set of much stricter ethics measures that President Trump had agreed to, addressing what had become one of the biggest remaining obstacles to Democratic support.
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Under the new rules, “covered” officials, including the president, vice president, members of Congress, federal judges, other high-ranking officials and their spouses, would be prohibited from launching or promoting digital assets. (Children of covered officials, however, remain outside the restriction.) They would also be prohibited from holding more than $15,000 of equity in a company that generates the majority of its revenue by issuing or “sponsoring” digital assets.
For officials like Trump already involved in one of these qualifying business interests, they would either have to sell the stake or transfer it to a qualified blind trust, managed by an independent trustee.
Furthermore, a large part of these ethics restrictions was that they gave state attorneys general a role in enforcing them, thus addressing Democrats’ concerns that enforcement might otherwise fall largely to Trump’s Justice Department (which would not lift a finger against him).
These changes ultimately seemed sufficient.
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The deal fails
But Monday eveningDemocrats came back with another counterproposal aimed at strengthening ethics restrictions.
The full proposal has not been made public, but reports indicate that Democrats wanted the rules expanded to more directly cover the children of public officials and wanted public officials with significant interests in crypto companies to actually liquidate their holdings, not simply transfer them to trusts. Concerns also remained about whether the enforcement mechanism still left the president too insulated from action by state attorneys general.
Republicans vehemently rejected the counterproposal Tuesday morning, with Sen. Cynthia Lummis’ spokeswoman saying the proposal seemed “identical” to Democrats’ position weeks earlier, a statement Democrats rebuked by saying they had pushed for the language for much of the last year.
At this point, much of the optimism around the passage began to slip out of the sails, but for the market, it was only when CLARITY effectively failed its vote that Bitcoin fell, briefly falling 4% below $75,000 before beginning to recover.
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So what happens now?
For CLARITY in particular, the immediate path forward is unclear.
Technically, the bill is not dead. Lawmakers could resume negotiations, make new concessions and try another vote. But, according to reports, the Republicans seem quite jaded while the Democrats seem to be standing still. Moreover, the calendar is now firmly stacked against them, with Congress preparing to leave Washington before the November midterm elections.
There is the possibility of a post-election push, or another attempt if lawmakers unexpectedly reach an agreement before then, but today’s failure makes it much harder to see CLARITY becoming a major legislative priority again this fall.
But it is important to note that crypto rulemaking will not stop.
The CFTC and SEC will continue to use their existing authority to write rules and clarify how current commodities and securities laws apply to crypto wherever possible. The limit, however, is permanence. These agencies can still have an impact, but they cannot recreate the certainty that would come with a comprehensive law like CLARITY, and these rules may be challenged or rewritten by future administrations. That said, I still expect the mainstreaming of crypto to progress, even if it is once again more complicated.
But for this integration to be set in stone and make it much harder to go back, it seems we have to keep waiting. Until when no one can guess.