The CLARITY Act and Its Implications for U.S. Crypto Market Structure

The CLARITY Act, a cornerstone of U.S. digital asset legislation, has emerged as a focal point for institutional investors navigating the evolving crypto landscape. Passed by the House in July 2025, the Act aims to clarify jurisdictional boundaries between the SEC and CFTC, categorizing digital assets into distinct classes-digital commodities, investment contracts, and permitted payment stablecoins-to streamline regulatory oversight. However, the Senate's markup process and bipartisan stalemates have introduced significant uncertainty, reshaping institutional risk assessments and investment strategies in the fourth quarter of 2025.

Senate Markup Timelines and Legislative Divergence

The Senate Agriculture Committee, led by Senators John Boozman (R-AR) and Cory Booker (D-NJ), released a bipartisan discussion draft in November 2025 that grants the CFTC exclusive jurisdiction over spot trading of "digital commodities" defined as fungible assets transferable peer-to-peer on cryptographically secured blockchains. This approach diverges from the House's CLARITY Act, which emphasizes blockchain-centric definitions. Meanwhile, the Senate Banking Committee, under Chair Tim Scott (R-SC), is advancing a parallel framework under the Responsible Financial Innovation Act, focusing on SEC-related matters and broader definitions of digital assets.

These competing drafts highlight unresolved bracketed sections, particularly around DeFi oversight, blockchain developer protections, and cross-agency coordination. The Senate's markup timeline-initially slated for late December 2025-has faced delays, with industry feedback windows compressed and finalization pushed to early 2026. Such fragmentation has left institutional investors in a regulatory limbo, where conflicting definitions and jurisdictional overlaps complicate risk modeling.

Institutional Investor Responses to Regulatory Uncertainty

Institutional investors, including major players like Grayscale, have recalibrated their strategies in response to these delays. Grayscale's Q4 2025 analysis noted a shift toward privacy-preserving assets, with Zcash (ZEC) outperforming other crypto sectors amid heightened demand for privacy infrastructure. This trend underscores a preference for assets with clearer use cases in traditional finance, even as regulatory clarity remains elusive.

CoinShares data further illustrates the impact: CLARITY Act delays triggered $952 million in weekly global crypto ETP outflows in late 2025, reflecting institutional caution. While the House's CLARITY Act offers a "strong template" for market structure reform, as noted by Senator Scott, the absence of a unified Senate bill has led to hesitancy. For instance, Fidelity's Q3 2025 Signals Report acknowledged sustained inflows into spot bitcoin ETPs but emphasized the need for "further regulatory clarity" in 2026 to sustain institutional adoption.

Bipartisan Stalemates and Market Implications

Bipartisan challenges persist despite shared goals. The Senate Agriculture draft's focus on CFTC dominance clashes with the Senate Banking Committee's broader SEC-centric approach, creating a "regulatory tug-of-war". Critics argue that the CFTC's readiness to enforce the proposed framework remains unproven, with Senator Booker stressing the need for adequate staffing and resources before implementation. Meanwhile, Republican factions have hinted at pushing a standalone vote in early 2026, potentially sidelining Democratic priorities.

These stalemates have amplified macroeconomic risks. Grayscale's 2026 outlook warns that prolonged delays could "weigh on valuations," as much of the market's optimism about regulatory clarity is already priced in. Privacy-focused tokens, however, remain a bright spot, with Grayscale projecting their role as a "critical infrastructure layer" in integrating blockchain into traditional finance.

Path Forward: Reconciliation and Institutional Readiness

The final shape of the CLARITY Act will hinge on reconciling the Senate Agriculture and Banking drafts. While the House's blockchain-centric definitions offer specificity, the Senate's broader approach risks over-inclusion, potentially capturing assets with hybrid security-commodity characteristics. Industry groups are lobbying for protections for open-source developers and non-custodial service providers, a demand yet to be fully addressed.

For institutional investors, the key takeaway is clear: regulatory clarity remains the linchpin for mass adoption. As Grayscale notes, "privacy tools will become increasingly essential" if public blockchains are to be integrated into the broader financial ecosystem. Until the Senate resolves its internal divisions, institutional capital will likely remain cautious, favoring assets with defensible use cases and minimal regulatory exposure.